AUDGBP Pressured After RBA Rate Meeting

AUD GBP Higher as UK Inflation Dips Slightly

The AUDGBP exchange rate failed to get a boost from the Reserve Bank’s latest interest rate meeting with the pair trading below the 0.5500 level. The benchmark interest rate was kept on hold at 0.1% and the bank were playing a cautious approach with the JobKeeper scheme ending and an overheating property market.

The AUDGBP rate trades at 0.5490 for a loss of almost 0.10% on the day.

Reserve Bank Sees a Strong Economy but Risks Weigh

The Reserve Bank of Australia kept its interest rate untouched at 0.1% and this will be a familiar feature if the bank follows its goal to raise rates in 2023 or 2024.

The bank did sound a warning over unemployment, despite the economy seeing more Aussies in work than before the virus. Governor Philip Lowe said:

“The economy is operating with considerable spare capacity and unemployment is still too high. It will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases that are consistent with achieving the inflation target.”

His comments come just a week after the end of the JobKeeper furlough scheme, so it will be a few weeks before the next employment update to see if there is any damage to the economy.

Governor Lowe also remarked on the housing outlook as expected, saying that the bank would watch the trends in housing borrowing carefully. New Zealand recently moved to clamp down on speculators and there are fears of similar action in Australia. With travel and tourism still struggling, wage gains in the mining sector threaten to create a two-tier economy while first-time buyers struggle to get on the property ladder.

UK Set for Further Reopening

The British pound is also being boosted by the Prime Minister’s green light for ‘non-essential’ businesses to reopen on April 12th.

Boris Johnson is also set to discuss travel ahead of a travel task force announcement a week later. It is expected that a traffic light system will begin for foreign travel depending on the virus situation within each country. Despite the fast vaccine rollout, Johnson is sticking stubbornly to his February roadmap dates, with mid-May being the likely restart for the struggling airline industry.

It was also announced that everyone in England would be given access to two rapid virus tests per week in a move which was branded a huge waste of resources. The UK government’s latest decision-making seems hopelessly detached from the realisation that they have now vaccinated the vulnerable age groups in the country and have even gone further with other 50% of citizens lining up for a shot. This approach is also impacting on the UK economy’s potential as MPs drag their feet over the reopening despite the success of the vaccination program.

The pound could see an important test this week as it moves below 0.5500, with the yearly lows set last week at 0.5477. A push below that level would target the 0.5400 mark, where key support lies for the Aussie dollar.

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