AUDGBP Volatile After RBA Rate Announcement

AUD GBP Seeks Support from Australian Employment Data

The AUDGBP exchange rate was slightly lower on Tuesday but not before a wild swing from the latest RBA rate announcement. The Aussie traded as high as 0.5476 after the announcement, before the pound took control again and the pair now trades at 0.5428.

The AUDGBP pair saw yearly lows for June at the 0.5400 level.

RBA should cut stimulus

In its latest monetary policy announcement, the Reserve Bank of Australia (RBA) made no changes to the current monetary policy settings as expected. However, they did signal future small steps toward less policy accommodation.

The market had been expecting some form of stimulus tapering after the recent strong economic data. The RBA held onto the 2024 government bond as its yield target, while it also extended and tapered the asset purchase program. RBA policymakers did admit that the domestic economic recovery is progressing quicker than expected and that the recent coronavirus restrictions should not have a big effect on the economy.

However, modest tweaks to RBA guidance were offset by an extension of the current asset purchase program as well as indications that policy rates are likely to stay at current levels for longer than G10 peer central banks.

On inflation, the bank’s governor Philip Lowe said that he “wants to see inflation above 2% for a number of quarters.”

The RBA “needs to see wage growth sustainably above 3%,” Lowe added.

The governor also said that policymakers were “Not thinking of rate increases in 2023.”

Strong employment numbers in Australia had raised expectations of a tapering but the RBA seems determined to remain at the back of the queue for policy changes and prefers to let other central banks take the lead.

Fears over Australian house prices

Australia’s house prices are widening the gap in wealth and income inequality, which threatens to destabilise the national economic recovery, according to a panel of experts who are calling for a Royal Commission into the problem.

A new report by UNSW’s City Futures Research Centre, which consulted a panel of 87 economists and housing experts, said the gap is widening due to the fragmented approach to housing policy.

“Policy makers grasp at different pieces of policy impacting housing, including tax policy, monetary policy, macro-prudential policy, housing, infrastructure, planning and other sector actions, but never grasp the whole system,” the report said.

The UNSW researchers also took aim at the Reserve Bank, which they said were “flying in the face of advice from other central banks” and taking a “sanguine” approach to rising house prices in the belief that it would be beneficial for economic growth.

“This view has no validity if the longer-term evolution of the economy and the housing market is the concern.”

The AUD to GBP exchange rate has the lows for the year at the 0.5400 level and the initial taper bounce has faded to bring pound strength once more. The UK will see a GDP update on Friday and that is the next release of note for the AUD versus GBP.