AUDGBP forecast: China Cuts Interest Rates

AUD GBP Mixed as Central Banks Feel the Heat

The Australian dollar started the week off fairly flat against the pound yesterday, despite China making a move to cut interest rates in what may be a series of rate cuts in the coming weeks and months.

The People’s Bank of China (PBOC) have been fairly vocal that they do not agree with ultra-low interest rates so it is difficult to know just how low they will be prepared to go.

With the lockdown in China leading to economic data dropping off significantly and unemployment in China rising there is work to be done to get the economy kick-started again and it does seem that the PBOC are willing to act, but where interest rates head in the months to come is a hard data set to forecast.

With China’s economic performance having such a large impact on the Australian economy and the value of the Australian dollar, those holding Australian dollars will be watching closely, but so far the moves have not seemed to dent the strength of the Australian dollar against the pound, most likely because sterling has plenty of issues of its own to conquer.

Brexit is now hardly mentioned at present and there is no doubt that there will be a significant economic hangover coming in the U.K, having been hit hard by COVID-19. Being such a dense population the virus has spread and with a lockdown fully in place, each day that passes adds more fuel to the fire. Boris Johnson has the option to delay the Brexit date in June, and with no major progress due to the current global situation I would be surprised if he does not decide to delay Brexit once again. Previously and earlier this year, Johnson had said that he would rather leave with no deal than extend negotiations, however I do not believe he could have expected the issues that the world has had to face since.

A mention of no deal Brexit tends to weaken the value of Sterling so this is still one to watch, but it would be brave to stand firm with no deal when there is already such a crisis being faced.

RBA Interest Rate meeting minutes

Earlier today we saw the release of the Reserve Bank of Australia (RBA) meeting minutes from the last interest rate decision which led to the ASX closing down by 2.5%. RBA Governor Lowe suggested that the Australian economy could see the largest decline since the great depression and he gave a stark warning about jobs and the future health of the Australian economy.

Expectations from the RBA are a 6% contraction in economic performance along with a 10% unemployment rate, with wage growth to slip below 2% and to remain low for years to come. All of this is not good news for the value of the Australian dollar, although it does echo projections around the world of economic hangovers following the virus, so it may not mean that we are certain to see the Australian dollar weaken.

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