The caution surrounding the Chinese Coronavirus issue disappeared in Monday’s trading as the Shanghai Composite index of Chinese shares moved higher by 2.3% to close back above the level of its recent mini-crash. The gains also helped the Australian stock index to a 0.24% gain as the spread of the virus did not worsen over the weekend and the People’s Bank of China (PBoC) cut the rate on medium-term lending to 10 basis points in a move to further stimulate the economy after the virus fallout.
The GBP v AUD exchange rate was 0.3% lower and attention will turn to the release of the Australian Reserve Bank’s minutes from the February policy meeting.
RBA Minutes May Not Hold Much Surprises
The Reserve Bank of Australia (RBA) minutes from the February policy meeting are unlikely to provide much in the way of surprise after the Central Bank held rates steady at 0.75%. The recent bushfire crisis warrants caution over the economic numbers and a wait-and-see approach is likely.
RBA Governor Philip Lowe has already commented on recent platforms where he sees policy going and warning of the risks that the Coronavirus poses to the economy. Dr Lowe has hinted that the bank are not too concerned about meeting inflation targets at the moment and only tepid growth and higher unemployment are likely to see lower rates and the chances of a rate hike being very slim.
Pound Awaits Inflation Figures as Trade Talks Continue Amid Cabinet Reshuffle
The next key data to drive the pound versus Australian dollar rate will be the January Consumer Price Index release on Wednesday. Inflation is expected to move higher from 1.3% in December to 1.6% after the Brexit deadlock ended and any adjustment to that figure will move the exchange rate.
The UK is still at the early stages of trade talks and both sides seem unwilling to bend in certain areas. The UK government also saw a Cabinet reshuffle last week, including the resignation of Chancellor Sajid Javid who was expected to deliver his first budget very soon and become one of the shortest-serving Chancellors in history. Some reports suggest that Prime Minister Johnson is clearing the way for tax reform, with cuts to high street business rates being one of the potential additions to a budget.
Any sweeping reforms seen in the budget could make the UK more competitive versus the European Union and will only increase the pressure that Brussels is facing as it seeks to fill the Brexit hole in its future budget.
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