Australian Dollar Weakens in Spite of Higher Q4 Inflation Down Under

AUD GBP Boosted but a Busy Week of Data Begins

The Australian dollar remains on the back foot, even though Australia’s inflation statistics for Q4, between October and December, were surprisingly upbeat this week.

According to the Australian Bureau of Statistics (ABS) yesterday, Australia’s price pressures in the last three months of 2019 reached 1.8%, above economists’ forecasts for 1.7%, and closer to the Reserve Bank of Australia’s (RBA) 2.0% mid-point target.

In general, the Australian dollar tends to rise when inflation increases, because higher price pressures encourage the RBA to lift Australia’s interest rates, or at least maintain them steady at 0.75%.

RBA Tipped to Cut Interest Rates, Given Bush Fires, China’s Coronavirus

The AUD to GBP interbank exchange rate remains near its six-week high, in spite of Australia’s higher inflation.

In part, this is because the RBA is tipped to cut interest rates when it next meets on February 4th, to shield Australia’s economy both from the ongoing bush fires, as well as the coronavirus in China, Australia’s closest trading partner.

The RBA’s decision next week could be worth watching for, as well as the BoE’s decision today, for its impact on the pound to Australian dollar interbank exchange rate.

Bank of England Interest Rate Decision Due Today

The financial markets are split as to whether the BoE will cut the UK’s borrowing costs below their current 0.75%, with odds placed at roughly 50/50.

This is because, on the one hand, the UK economy shrank by -0.3% in November, while UK inflation was just 1.3% last month, well below the BoE’s 2.0% target.

Economic indicators this month have shown signs of a rebound, including last week’s IHS Markit PMIs (Purchasing Managers’ Indices) for services and manufacturing.

For more information on AUD exchange rates for an upcoming currency transfer, you can email me, Daniel Johnson, using the form below.