Pound to Australian Dollar forecast: Aussie Dollar nears decade low as central bank indicates further rate cuts

Pound to Australian Dollar forecast: Aussie Dollar nears decade low as central bank indicates further rate cuts

Stagnant start to the week for the GBP to AUD pair

The pound (GBP) to Australian dollar (AUD) rate began the week in a relatively sluggish mood on Monday morning. This lack of movement in the value of the pair was the result of negative economic rumblings on both sides of the world, which served to cancel each other out: news that the UK’s 2019 business investment outlook is forecast to fall to a 10-year low was met by continued concerns in Australia over global tensions. The situation in the Middle East and Hong Kong suppressed the AUD’s value, as risk-appetite towards the currency dampened.

Suren Thiru, Head of Economics at the British Chambers of Commerce – the department responsible for the UK’s disappointing business investment forecast – highlighted that: “The deteriorating outlook for business investment is a key concern because it limits the UK’s productivity potential and long-term economic growth prospects.” Consequently, companies are unable to progress with long-term plans as uncertainties surrounding Brexit take hold.

Australian dollar wilts

This malaise ended when the Reserve Bank of Australia (RBA) confirmed it’s likely to cut interest rates even further. The revelation comes in the wake of the bank’s decision to reduce rates for the first time in more than three years earlier this month. In the minutes from its latest meeting, the RBA said: “it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. The AUD subsequently plummeted to its lowest level in around a decade, causing the GBP to AUD rate to rise back above the $1.83 level this morning.

Looking ahead

The gloves are well and truly off in the Conservative party leadership race, following Sunday’s Channel 4 TV debate. There was one notable absentee, after clear frontrunner, Boris Johnson chose to sit it out. The former Foreign Secretary’s absence isn’t expected to derail his campaign, however, as Tory MPs continue to declare their support for him ahead of today’s second ballot of MPs.

Today’s speech by the Governor of the Bank of England, Mark Carney at the European Central Bank Forum in Sintra will be closely examined considering recent economic pessimism. While Mr Carney might further highlight the risk of Brexit to the economy, he isn’t expected to signal any deviation from the bank’s current monetary policy path.

A raft of economic data is released in the UK tomorrow, including the Retail Price Index, Producer Prices Index Core Output and Producer Price Index. But it’s the Consumer Price Index – a key indicator to measure inflation – that’s likely to gain the headlines. A sustained increase in the general price level of goods and services typically drags down the purchase power of GBP. Therefore, a high reading is typically seen as positive for the pound. May’s figure is forecast to tick down slightly from 2.1% to 2% – the Bank of England’s target.

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