Both the Australian dollar and the pound have come under fire in the past week. The AUD’s recent poor performance in the domestic economy has forced Wall Street bank Morgan Stanley into entering 2020 with a bearish stance on the currency. The bank suggests that a poor performance in the domestic economic figures will ultimately force the Reserve Bank of Australia (RBA) into cutting their interest rates. Meanwhile, concerns over the Bank of England’s future monetary policies are still up the air. Recent dovishness from members of the MPC sunk the GBP but investors suggest the bank may not necessarily cut rates which could cause a rebound for the pound.
AUD Could Move Lower if the Reserve Bank of Australia Move to Cut Rates
With the Wall Street bank Morgan Stanley shifting into a bearish stance on the Aussie dollar due to a subdued domestic economy, the currency looks at risk of interest rate cuts from the RBA. However, should this be the case, the market could be ill-prepared for such an event and the Australian dollar may suffer as a result. This comes as the Q3 2019 GDP growth disappointed many and came in under predicted figures at 0.4%.
Australia is still facing significant short-term economic impacts from the ongoing bushfires which have mounted further pressure on the RBA. The fires have been estimated in at costing around 4% of the nominal GDP for this year mentioned Adams. This is a significant amount that is likely to weigh on the AUD moving forward.
GBP Investors Suggest the BoE May Not Make the Rate Cuts at All
Recent dovish comments from the BoE have led many in the market to believe that the Bank of England is preparing itself for a rate cut at the end of the month. These comments sunk the GBP as many of them case from within the MPC, which is the committee in charge of the BoE’s interest rate decision. However, despite these worries, some investors appear optimistic that the bank will not make the cuts, and that it is only preparing the market for the instance that a cut was to be made. The BoE will await further economic releases before making any decisions on its interest rate. As it stands however, the AUD has the edge over the GBP in their exchange rate pairing.
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