The AUDGBP exchange rate is trading near the yearly lows with the Reserve Bank of Australia’s latest interest rate decision ahead this week. The RBA will deliver the latest policy update on Tuesday and traders will look for new insights into the economy’s path forward. Friday will then see the latest monthly GDP update for the UK economy.
AUDGBP is trading at 0.5434 with the yearly lows seen at 0.5400.
RBA expected to cut stimulus
Australia’s central bank is likely to cut some of its emergency stimulus to reflect the economy’s powerful recovery, even with half the nation in lockdown due to virus variant outbreak.
The Reserve Bank is expected not to roll over its three-year yield target to the November 2024 bond from the current April 2024 at Tuesday’s meeting. This would imply that interest rates won’t go up until sometime in 2025.
The central bank also runs a quantitative easing program but may revise it, with many economists expecting a more flexible program than the first two tranches of A$100 billion each.
The central bank’s Governor Philip Lowe has been determined to stay near the back of the global policy line, while Canada and New Zealand are moving more quickly to tightening policy. Lowe might wait for the US Federal Reserve to move first, despite local unemployment tumbling to 5.1%.
Markets are now pricing in the first interest-rate rise for late-2022 and economists at Deutsche Bank are expecting 2025, with the consensus at 2023.
Lowe is looking to drive the economy to maximum employment and push wage growth above 3% and rekindle dormant inflation, which the central bank hopes to keep between 2-3%. That will be the problem for the RBA as price pressures are being seen globally as economies reopen.
UK GDP update ahead
The UK will see another GDP update this week for the month of May on Friday.
The latest figure is expected to show a 3.9% performance for the month in the British economy and is higher than last month’s 1.5% reading.
The ONS said that the GDP had stalled slightly in Q1: “The level of GDP in the UK is now 8.8% below pre-pandemic levels at the end of 2019. Compared with the same quarter a year ago, the UK economy fell by an unrevised 6.1%.” Adding more context: “In output terms, the largest contributors to this fall were from the education, wholesale and retail trade, and accommodation and food services industries, in particular at the beginning of the quarter in response to the tightening of coronavirus restrictions.”
The data for the week ahead should reveal whether the Aussie dollar versus pound rate will return to the year’s lows, or whether the former can find a rebound higher.
The AUD to GBP exchange rate has the lows for the year at the 0.5400 level, which was last seen in June.