AUDGBP Higher After Reserve Bank Minutes

AUDGBP Lower Again with Risk Markets Sell-Off

The AUDGBP exchange rate was trading 0.25% higher on Tuesday after meeting minutes from the Reserve Bank gave traders an update on the central bank’s thoughts. Governor Philip Lowe gave a speech yesterday in Melbourne ahead of the minutes and much of his plans are already known with the bank targeting employment and inflation levels before any further policy action.

AUDGBP is trading at 0.5585 as the Aussie tries to get back above the 0.5600 level.

Reserve Bank is ‘Closely Monitoring’ Housing Market

The Reserve Bank of Australia (RBA) has said that it is “closely monitoring” the domestic property market as prices rise and lending soars to new records.

Australian property prices jumped 2.1% in February, which was the strongest national growth in 17 years, while bank forecasts expect two-year growth near 20%. Tuesday’s RBA minutes said that during its March meeting it, “acknowledged the risks inherent in investors searching for yield in a low interest rate environment”.

The market is expecting the bank to step in for this reason with investors moving into riskier assets due to the lack of returns available in bonds. The RBA didn’t flag any immediate moves saying, “lending standards remained sound and that it was important that they remain so”.

Similar moves in New Zealand last year saw prices soaring by 19% which led to curbs on lending. Recent data in Australia has shown that the number of homebuyers borrowing over six times their salary has almost doubled since March 2019.

The Reserve Bank has said that it will not raise rates for another three of four years and this is making investors more confident to dive in with high levels of debt.

RBA Will Support for Employment and Inflation Targets

Governor Lowe had already updated markets on the need to use policy measures until employment and inflation reach the bank’s targets.

The governor added that the recovery so far had been “quicker and stronger” than the bank had planned and it does raise the question about the banks’ job in the years ahead. It’s all good saying that you won’t touch rates for three years, but Turkey ruled out raising rates last year until inflation soared.

Although the economy is very different, the Australian economy is “cashed up” with household savings and a booming property market, so a full reopening in the country could still see inflation pick up. This would require further stimulus from the central bank and could limit the Aussie dollar’s gains vs the pound.

The Bank of England will make its own interest rate update on Thursday, but the bank is not expected to change anything substantial in the wake of the Budget. The extension of the furlough scheme capped their unemployment forecast, they will likely wait for the economic reopening before any moves.

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