The pound to Australian dollar interbank exchange rate rose this week, to over a four-month high. Sterling has benefited from the reports of progress in the Brexit negotiations, although these have yet to be fully substantiated.
In addition, the Australian dollar weakened, because the Reserve Bank of Australia (RBA) painted a pessimistic picture of Australia’s economic outlook, and because a drone strike attack on a Saudi Arabian oil field reduced demand for so-called “commodity currencies” like the AUD.
This week, the minutes of the RBA’s latest interest rate decision were released, in which Australia’s central bank presented a pessimistic outlook for the economy Down Under. For instance, the RBA noted that, even though Scott Morrison’s government has cut taxes for low-to-middle income earners, “the [RBA’s] liaison with retailers suggested that these [tax cuts] had yet to lift spending noticeably.”
In addition, the Reserve Bank said that: "wages growth had remained low and the upward trend in wages growth appeared to have stalled” while both Australia’s unemployment and underemployment rates could be lower.
This opens the door to the RBA cutting interest rates further in 2019/20, below their current all-time low of 1.0%, perhaps down to 0.5%.
In addition, another reason why the pound to Australian dollar interbank exchange rate rose this week is because there was a drone strike attack on Saudi Arabia’s second largest oil field last weekend.
This cut Saudi Arabia’s crude oil production capacity by more than half, and lifted the price of a barrel of Brent crude by +13%. US President Donald Trump has blamed Iran for the strike, and said that the USA is “locked and loaded” to respond on Saudi Arabia’s behalf.
The Australian dollar was on the back foot this week, as Australia’s economic growth disappointed in Q3, from July to September. As a result, the Reserve Bank of Australia looks increasingly set to cut interest rates further in 2020.
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