The GBP AUD exchange rate was lower by over 1% on Tuesday after the latest RBA interest rate meeting. The bank held rates as expected, but they also said that lending standards should be maintained, implying that no action would be immediate on housing. The UK has also joined the sabre rattling over Ukraine and that is weighing on the economy.
The GBP AUD exchange rate was trading at 1.8600 after sinking 300 pips this week.
Reserve bank expected to hike in 2023 say analysts
The Reserve Bank of Australia held rates steady at the record low 0.10% but eyes are now on February 2022 for an update.
Banks are already pricing in a raise in the cash rate over the next two years, as shown by a massive gap between two-year and three-year fixed rates, while the likelihood is that the current term funding period will end at some point in early 2022.
“Let’s face it, the RBA has done an exceptional job supporting the economy through the term funding facility,” sid John Kolenda, managing director at Finsure.
The bank’s governor refused to ring the bell on mortgage lending and house prices, saying:
“Housing prices have risen strongly over the past year, although the rate of increase has eased over recent months,” RBA governor Philip Lowe explained.
“With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers.”
The total value of Australia’s 10.7 million residential dwellings rose by $487 billion in the quarter to $9.3 trillion, the Australian Bureau of Statistics said on Tuesday.
But, Canstar group executive Steve Mickenbecker said, “Australians are becoming nervous about property in 2022,”
“With 23 per cent of Australians expecting an increase in foreclosures and mortgage stress, even before we have seen the cash rate go up, there is limited confidence in our ability to absorb a sustained increase in home loan interest rates.”
The RBA still sticks to its 2024 rate rise prediction, but inflation could change their plans.
UK sabre rattling hurts the pound sterling
The UK Prime Minister said the country would use “all the economic and diplomatic tools at its disposal” to prevent any invasion of Ukraine by Russia.
The US and Russian leaders are due to speak in a video call on Tuesday amid rising tensions over a Russian troop build-up on the Ukrainian border – seen as a sign of a potential invasion.
Vladimir Putin said on Tuesday:
“The threat on our western borders is … rising, as we have said multiple times. … In our dialogue with the United States and its allies, we will insist on developing concrete agreements prohibiting any further eastward expansion of NATO and the placement there of weapons systems in the immediate vicinity of Russian territory.”
The potential for tension over Ukraine could add weight to sterling with Australia benefiting from a safe haven vibe against the British Pound.
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