The GBP AUD exchange rate was flat on Monday as traders await further data. Analysts at ING said that the Reserve Bank of Australia might have to ‘go large’ on interest rate hikes due to inflation and tight employment levels. A former Goldman Sachs Chief economist urged the UK leadership candidates to develop a coherent strategy to boost the economy.
The GBP to AUD rate opened the week at the 1.7340 level, trading at 1.7338 in Monday’s session.
Former Goldman Sachs economist urges ‘coherent strategy’ for the UK
Former Chief Economist at Goldman Sachs, Jim O’Neill said that the UK ‘urgently’ needs a solid plan for the economy.
In a Financial Times’ article, O’Neill wrote the remaining candidates should reflect on how they will put the UK on a more productive path than that taken after the economic disaster of the 2008 financial crisis, the background to the party’s first election win. “Employment growth has been surprisingly positive, even if much of it is low-paid. But it is also highly unproductive — the annual productivity rate of growth has been about a third of where it was in the previous 15 years. Unless we repeat the expansion of the UK labour force or productivity rises significantly, the country’s growth will rapidly slow,” he added.
O’Neill also questioned the desire of party candidates to cut taxes, saying that it boosts company incomes. Historically, the cuts have not translated to higher investment spending. Higher corporate profits made their way to executives and shareholders rather than the overall economy.
In closing, he said: “The next prime minister will be chosen by a very small slice of the population. If he or she is not focused on the long-term interests of the nation, they won’t last much longer than the previous one.”
Australian employment lows could force RBA to ‘go large’
ING analysts said that the current low levels of Australian employment could push the Reserve Bank to “go large” with upcoming interest rate increases. A decrease in the unemployment rate was anticipated this month. However, not of the recorded size. Previously, the all-time low was 3.8%. A reduction to 3.5% is significantly tight.
The last decision made by the RBA was a straightforward one, choosing a 50bp hike. However, the next meeting may mean a rate hike of 75bp ahead of forthcoming inflation figures and the full percentage point hike by the Federal Reserve.
With inflation released, Wednesday will be an important day for the pound versus the Australian dollar. The country’s inflation rate will likely increase from 5.1% to 6.3%, putting pressure on the RBA to embark on a steep rate hike in its next meeting to get ahead of the data.