AUDGBP Waits for Reserve Bank Rates Update

AUDGBP Drops Despite Hot Australian Inflation Release

The AUDGBP exchange rate is unchanged ahead of the Reserve Bank of Australia rate announcement. Markets are aware that the interest rates will stay at record lows but they will be looking for an update on the path ahead after strong data from Aussie jobs.

AUDGBP is trading at 0.5437 and the yearly lows are below at 0.5400.

RBA should cut stimulus

Australia’s central bank is expected to wind back some of its emergency stimulus after the recent recovery in the economy. That could still happen even as half of the nation is in lockdown due to virus variant outbreak.

Analysts expect the Reserve Bank to roll over its three-year yield target to the November 2024 bond from the current April 2024 at this meeting. This would suggest that the bank doesn’t see interest rates going up until sometime in 2025.

The central bank also has a quantitative easing program but this may also be adapted. Economists are expecting a more flexible program than the first two purchases of A$100 billion each.

Governor Philip Lowe has stayed committed to the global policy line of low interest rates and stimulus and he has stayed behind the likes of Canada and New Zealand as they move more quickly to tightening policy. Lowe might wait for the US Federal Reserve to act first but the local unemployment has tumbled to 5.1% while there is the issue of inflation pressures that could scupper his plan.

Markets are now seeing a first interest-rate rise for late-2022 for the Australian economy, with the most dovish economists expecting 2025. The consensus for the first rate hike is in 2023.

The RBA has said previously that they want to drive the economy near to maximum employment and push wage growth above 3% before taking action.

Boris Johnson commits to the reopening

UK Prime Minister Boris Johnson provided some support for the pound as he outlined his plans for the reopening on July 19th.

Speaking at Downing Street the prime minster set out his measures for the so-called ‘freedom day’ as the UK looks set to see social distancing and other measures eased. Johnson has echoed comments from the new health secretary, Sajid Javid, who said that the easing should “irreversible” and that the economy should “learn to live with” the virus.

The ability to do so has been helped by the vaccination rollout, although Johnson didn’t rule out a return to restrictions if a new variant emerged in the winter months. Although that would be a headwind for the pound, it has usually led to the same virus being prevalent in Australia and other nations. As he closed his speech Johnson said the government would continue to monitor the data and “retain contingency measures”.

The AUD to GBP exchange rate has the lows for the year at the 0.5400 level, which was last seen in June.