Pound to Australian Dollar Soars as BoE Holds Rates

Australian Dollar Forecast – Unemployment Weighs on Sentiment

The pound to Australian dollar interbank exchange rate has hit this high today, in part because the Bank of England (BoE) voted to maintain UK interest rates at 0.75% yesterday.

Before the decision, the financial markets were unsure if the central bank would vote to keep Britain’s borrowing costs steady or cut them, with odds placed at roughly 50/50.

However, in the event, only two members of the BoE’s nine-person Monetary Policy Committee (MPC) voted to ease monetary policy back to its all-time low of 0.5%. So an unexpectedly large majority was happy to keep interest rates steady.

This has strengthened the pound, because this suggests that the BoE has some confidence in the UK economy’s acceleration in early 2020. This follows recent surveys pointing to greater business confidence and increasing economic activity this month.

Australian Dollar Weakens as China’s Coronavirus Spreads

Meanwhile, turning Down Under, the Australian dollar has weakened, partly because the coronavirus in China, Australia’s closest trading partner, continues to spread.

According to the latest reports, the coronavirus has now infected more people than the similar SARS virus in 2002/3, with 7,711 cases confirmed. The virus has spread to all 31 of China’s provinces, as well as countries as far as Germany and the USA.

This has weakened the Australian dollar, because Australia is often used as a developed world proxy for China’s economic outlook, given the close economic ties between the two nations. So when China’s economy looks like it might be up against the ropes, the Australian dollar often loses out.

Economic Cost of Bush Fires Remain Unclear

In addition, another reason why the Australian dollar has declined is because Australia continues to combat bush fires across its territory.

Economists are unsure what the cost of the bush fires will be for Australia’s GDP (Gross Domestic Product), in addition to the human and environmental losses.

The Reserve Bank of Australia (RBA) may cut interest rates when it next convenes on February 4th, to try and shield Australia’s economy from the bush fires’ impact. Traditionally, this would weaken the AUD, so could be worth watching for.

If you’re considering buying or selling Australian dollars and would like to compare rates or know more about the factors that could impact your exchange rate, feel free to contact me directly, I look forward to hearing from you.