AUD to GBP Lower on Further RBA Stimulus

AUDGBP Higher on ‘Truly Remarkable’ Jobs Rebound

The AUD to GBP exchange rate is trading lower on Tuesday after RBA Governor Philip Lowe destroyed any expectations of tapering with a further A$100 billion if stimulus. The move sets the pair up for the Bank of England announcement on Thursday.

AUDGBP is trading lower by 0.17% at 0.5565 as the pound tries to capitalize on the Aussie dollar weakness.

RBA Already Looking at a Taper of Stimulus

The Reserve Bank of Australia (RBA) was seeing talk of a potential tapering of its recent stimulus program due to some signs of good performance in the economy. Instead, the bank’s governor announced plans to double the package with a further $100 billion in bond buying. The move by the bank seems a bit heavy considering they were also bullish on the country’s recovery.

Governor Lowe said:

“In Australia, the economic recovery is well under way and has been stronger than was earlier expected”.

The move by the RBA is likely due to the government’s decision to end the employment subsidy program at the end of March. Economists have said that the decision shows a fragile recovery, with high unemployment and stagnant inflation, but the Aussie economy is in a much better place than other developed nations.

The RBA gave further clarity on the path forward, saying that the bank would not increase rates until wages growth was “materially higher”.

They added:

“This will require significant gains in employment and a return to a tight labour market. The board does not expect these conditions to be met until 2024 at the earliest.”

The bank is mirroring analysts’ expectations for the UK to hold rates at 0.1% until 2023, so there is obviously another co-ordinated plan at play amongst the global banks. This is not surprising as governments have ramped up their debt levels again and higher interest rates would make the economy harder to manage.

One headwind for the central bank is the continued rise in housing prices and the latest stimulus measures will continue this trend. If they are planning to hold rates low into 2024 then the cost of living and property could bring blowback from those that are lower earners.

Bank of England Bats Next

The Bank of England (BoE) will announce their own interest rate and monetary policy on Thursday and the BoE is expected to hold steady on rates and stimulus. The signing of the Brexit agreement alongside the country’s fast-moving vaccine program should see the bank hold off on further action, but as the RBA has shown, the central banks love buying bonds and their arm can be twisted by banking executives. All eyes will be on the latest quarterly report from the BoE.

The AUDGBP is on track for a further move lower towards the 0.5500 level and the BoE could seal that move if they hold off on further stimulus. Feel free to get in touch using the form below to discuss these factors in further detail.