AUD to GBP Holds Monday Gains as RBA Leaves Rates

AUD GBP Grinds Higher After Australian Employment Data

The AUD to GBP exchange rate was flat on Tuesday after the Reserve Bank of Australia held its monetary policy steady, with its benchmark rate unchanged at 0.10%. Traders are now waiting for the latest budget from Chancellor Rishi Sunak tomorrow as he tries to balance the country’s books, while supporting the lockdown-battered economy.

AUDGBP is trading at the 0.5580 level after strong gains were seen in the pound on Friday.

RBA Keeps Rates on Hold After Bond Panic

The Reserve Bank of Australia (RBA)has kept its monetary policy on hold today, leaving the benchmark rate at 0.1%, which is the same as the UK. Traders were expecting the bank to leave the rate alone and after a surprise doubling of the bank’s bond buying measures last month, there was unlikely to be any further action.

Traders were still interested in the bank’s moves after last week saw volatility in the bond markets. Markets were beginning to price in the expectation for inflation coming sooner than central banks are planning for. This saw the yields on government debt rising and the RBA had to buy the largest amount of bonds since the panic in March 2020 to cool the rise.

The Aussie economy has been performing well due to the stimulus and strong demand from China for its exports. Despite this, the RBA is still in a tough place with the recent inflation expectations, rising bond yields and a strong Aussie dollar. The RBA had forecast 2024 for raising interest rates, but the market was testing the timeframe of that projection last week.

Sunak Budget to Move the AUDGBP Tomorrow

Tomorrow will be a big day for the AUDGBP pair as the UK Chancellor releases his latest budget for the economy. The Prime Minister set out a reopening plan last week that was on the cautious side and markets are worried that Rishi Sunak’s budget will also be restrictive on growth with excessive taxation.

Mr Sunak is reported to be raising corporate taxes from 19% to 26% while he may also take action on capital gains tax. Former Bank of England Governor Mervyn King urged the Chancellor to “keep options open and not to commit ourselves to a precise path for government tax and spending measures.”

His comments come as Boris Johnson threatened to expel any MPs that voted against the new budget over fears of a growing revolt over the taxation rises.

The AUD to GBP rate still has support at 0.5500 if the pound gets a boost from the budget. The Aussie dollar looked to be heading for the 0.5700 level again until Friday’s dump on the RBA bond buying.