The RBA's decision to cut rates to a historic low did very little to strengthen GBPAUD exchange rates, how will Thursday's interest rate decision from the Bank of England impact the currency pair?
In the early hours of yesterday morning, the Reserve Bank of Australia announced an Interest Rate cut from 1.75% to 1.5%, the lowest rate in history. GBP/AUD rates fell by almost a cent following the news, but the Aussie actually gained against all of its major counterparts by the end of the day. Although a cut in rates is usually seen as negative for an economy, Interest Rates of 1.5% are quite enviable in today’s climate, and the cut was widely expected.
RBA Governor Glenn Stevens gave a statement to justify his decision, stating that Inflation was at a 17 year low with little signs of improving, but that low interest rates were incentivising banks to lend money, therefore helping the economy in the right direction. He will give further clarification on his decision on Friday morning during the RBA’s Monetary Policy Statement.
The biggest mover of GBP/AUD rates this week is likely to be the Bank of England Interest Rate decision this Thursday, where economists have forecast a cut to from 0.5% 0.25%. Although the cut is widely anticipated, the BoE could look to implement other methods of monetary stimulation such as further Quantitative Easing, all of which could weaken the Pound significantly. The last time the BoE cut interest rates in 2009, the Pound fell by 15 cents against the Australian Dollar, and this sort of fall would have a severe impact on larger currency requirements.
In light of yesterday’s RBA rate cut having very little impact on GBP/AUD rates, and with the current state of the UK economy, I would expect the AUD to continue strengthening against Sterling over the coming months, and if a UK Interest Rate cut is announced this could provide Aussie Dollar sellers with a fantastic opportunity to take advantage of.
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