The AUDGBP exchange rate is 0.10% lower on Thursday, but currency markets are in a bit of a lull after recent events. The passing of the US stimulus measures, and the well-known pave of vaccinations means that traders have priced in the current growth expectations.
The Aussie versus the pound still trades near 0.5550, which is in the middle of the recent 100 pip range that has dominated the price action since February.
BoC taper could bring RBA debate
The Bank of Canada’s recent move to reduce its debt purchases could see pressure on the RBA to do the same amid strong economic data.
Canada’s central bank will cut purchases of government debt by 25% and is stepping up its pace towards an interest rate increase. The Australian economy is in a better place and this will see the Reserve Bank Governor Philip Lowe struggling to defend his timetable for a 2023-24 rate hike.
Victoria and Western Australia were the biggest drivers of gains after both states had been forced into brief lockdowns in February. The data is another boost for Australia’s economy but will not affect the exchange rate or monetary policy outlook. Traders have already seen evidence of a revival in confidence and the Aussie dollar has still struggled to advance.
The Canadian dollar soared on the update and that is likely the reason that the RBA are staying coy on the potential for rate increases. However, the bank also has to deal with soaring house prices and a recent move to curb speculators could remove any steam from the Aussie dollar. Central banks should enjoy this quiet time in the markets as they will face many issues when countries open up fully, such as inflation.
NAB survey sees economy on track
Australia’s business activity is close to its pre-virus performance, according to a National Australia Bank Quarterly Business Survey.
Business conditions across the country has seen an improvement in all states and territories, except South Australia. Western Australia leads, with the mining state reaching its highest level of business conditions since 2008. Retail businesses were the only laggard among the different business sectors and they still have room to reach their full potential.
This week saw the UK release jobs figures with the country’s unemployment rate dipping to 4.9%, but markets are aware that the furlough scheme is masking the real damage. Inflation was also released for the UK and moved higher to 0.7% from 0.4%. This was lower than expectations and was ignored by the market, but traders may be underestimating the inflationary build that is stable with lockdowns, but could rise with reopening, as was seen in the US data lately.
The AUDGBP will have to wait until next Wednesday for a major data point, with the latest Aussie inflation numbers expected. That could start the debate on tapering if inflation is seen to pick up with a the country seeing 0.9% last time.