GBP AUD Starts Another Recovery on Growth Outlook

GBP AUD Near Resistance with Breakout Possible 

The GBP AUD exchange rate was trying to mount another recovery with an 0.70% move higher on Thursday. After suffering in recent months, the Australian outlook for growth has soured and the pound is being priced higher. Commonwealth Bank has predicted an Australian economy slump in the months ahead.

The GBP to AUD rate was trading at 1.7550 and will look for a catalyst to push further.

Australian economic slowdown expected

The Commonwealth Bank has said that Australia’s economy will see a drastic slowdown in the year ahead and even suggested the Reserve Bank might have to cut rates by the end of next year.

Interest rates were hiked to 0.85 per cent, for the first back-to-back rate rise in 12 years. The size of the rate hike shocked markets, which had expected a move of 25 or 40 basis points.

Commonwealth bank’s head of economics, Gareth Aird said the central bank was “first and foremost inflation fighters”.

“The RBA looks very intent on dropping the inflation rate quickly. But this will come at the expense of growth in aggregate demand, particularly household consumption,” Mr Aird said.

“Their objective of ‘the economic prosperity and welfare of the people of Australia’ has taken a back seat to their desire to drop the rate of inflation,” he added.

“We do not think the RBA has to run hard against wages growth by aggressively hiking the cash rate … but ultimately it does not matter what we think, it is about what they do.”

Mr Aird said Commonwealth Bank expects consumer spending to be dramatically reduced due to higher interest rates.

“Higher than anticipated energy prices will put downward pressure on real consumer spending, particularly discretionary consumption for lower-income households,” Mr Aird said.

“Consumer confidence is already in deeply pessimistic territory and we do not see that picture turning around anytime soon.”

EU stance on protocol ‘hardened’ after UK threats

The EU has said its stance on the Northern Ireland Protocol has “hardened” in the face of the UK’s threats to scrap part of the agreement, an Irish government minister has warned.

 

Foreign affairs minister Simon Coveney appealed to the UK Government to step back from its plan to publish domestic legislation that would override elements of the post-Brexit protocol.

Mr Coveney said publishing the legislation would “cause a lot more problems than it solves” for the EU and UK.

“I’ve been speaking to many other EU foreign ministers, in many ways in the last number of weeks the EU position has hardened because I don’t think there’s a single capital across the EU and anybody in the European Commission that believes, at the moment anyway, that the British Government is serious about a negotiated solution because there is no signal coming from London that they are.”

“Instead, all of the signals are about unilateral action, making demands with no willingness to compromise, and that has hardened the EU response to what they’re seeing coming out of London now.”

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