AUD has had no easy road in recent weeks. However, yesterday the Aussie Dollar rose following a dismissal of quantitative easing (QE) from the RBA. Meanwhile GBP retreated in response to recent general election polls.
QE Played down by Governor of the RBA
RBA governor Philip Lowe presented his speech yesterday to the Annual Australian Business Economists Dinner held in Sydney. He emphasised that QE was not on the RBA’s agenda at this point in time. He also elaborated that negative interest rates in Australia are “extraordinarily unlikely”.
These words of optimism gave a slight lift to AUD as investors had worried that QE was a technique due to be used following a previous dovish response from the RBA. Other factors like the inflation targets not being met, the labour market deterioration even with three bank interest rate cuts and the ‘Phase One’ deal between the US and China which still remains unsolved all weigh heavy on AUD and many believe that QE and interest rate cuts may be on the table at some point in 2020.
GBP Retreats in the GBP/AUD Exchange Rate Pairing Following Poor Poll Results for the Tory Party
GBP lost some ground yesterday as new general election polls were released. The results showed that the Tory party had begun to slip and lose its steady majority over the opposition Labour party. The scores from Kantar showed the Tories at 43% whilst the Labour party creeped up to 32% of votes. Economists have suggested that a surprise Labour win would send UK equities tumbling, even with a softer Brexit. Should the Labour party catch up or even surpass the Tories it will likely weigh on GBP as Brexit will not be so much a done deal as Boris Johnson has promised the markets.
AUD Hangs onto Hawkish Response from Dr Lowe Whilst Observing the Us-China Trade
AUD was put in a better position following Lowe’s speech, but the RBA failed to fully rule out the chance of QE or interest rate cuts, instead suggesting that these options were still on the table should Australia experience any rapid increases in unemployment with a decline in inflation. With the comments the gains seen by AUD began to slowly ease back. Investors will be looking to the US-China trade deal for any breaking headlines to suggest the deal is closer to being closed.
Thank you for reading and I look forward to hearing from you soon, Jonathan Watson – [email protected]