AUD GBP Sinks After Reserve Bank Disappoints

The AUD GBP exchange rate sunk by around -0.80% after the Reserve Bank of Australia disappointed rate hike hawks. The bank ditched their Yield Curve Control efforts and signalled a possible hike for 2023, but traders had wanted something more aggressive.

The AUD GBP exchange rate is trading at 0.5455 as the recent Aussie rally hits resistance.

RBA signals 2023 rate hike but traders see faster moves

The Reserve Bank of Australia has sent a strong signal that its emergency measures to support the economy during the pandemic will now be scaled back, paving the way for an earlier rate rise in the country.

As was expected, the central bank left its official cash rate unchanged at a record low 0.1%, however the bank failed to defend that level in the open market last week. Markets also studied a slight change in the bank’s accompanying statements. Previous months’ statements had marked 2024 as its “central scenario” when inflation would be “sustainably” within its 2%-3% target range.

But a recent rise in core inflation to 2.1% in the September quarter has brought forward expectations for an earlier move.

The RBA also watches the labor market closely and said that for the actual inflation rate to remain within a 2%-3% band, the labour market will need to be “tight enough to generate wages growth that is materially higher than it is currently”, Reserve Bank governor Philip Lowe said, adding “this is likely to take some time”.

Despite the bank’s dovishness, markets are pricing in almost 80 bp of tightening over the next 12 months, with a 10 bp hike seen in six months.

Lowe also commented on the housing market, saying:

“At the moment, I don’t have any concerns about the deterioration in lending standards”.

But an analyst at Fitch was more concerned, saying: “Low interest rates are the main channel through which people are taking on more debt. It can become a concern in terms of not only affordability for low-income households, but also it creates a lot of potential financial instability and risk. And this is something many central banks are not taking too seriously”.

NSW brings forward date for lifting of restrictions

New South Wales has brought forward its lifting of restrictions, but only for the vaccinated.

Dom Perrottet, Premier of NSW, said in a Tweet:

“We’re bringing forward our reopening roadmap for the double-vaccinated. From next Monday, it means more friends and family at home, more capacity for hospitality venues, more people at events – more enjoying what makes NSW great.”

Meanwhile, former prime minsters Malcolm Turnbull and Kevin Rudd have laid into Scott Morrison’s handling of the French submarine deal, with Turnbull saying that Morrison should apologise, and Rudd saying he is “out of his depth”.

Australia cancelled a deal with France’s Naval Group as it sought to build 12 nuclear-powered submarines in a deal with the United States and Britain. The cancellation caused a major bilateral rift between the two countries.

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