Reserve Bank of Australia Meeting Minutes See AUD GBP Exchange Rate Tumble
- AUD bearish after RBA Minutes – All eyes on end of July inflation data
- AUD GBP slides on rate cut bets – Economists predict RBA policy easing in August
- Inflation data causes GBP problems – Strong figure means post-Brexit CPI surge could be worse
- AUD GBP exchange rate forecast – UK jobless data on tap
Markets reacted bearishly to suggestions of a rate cut from the Reserve Bank of Australia (RBA) yesterday, pushing the AUD GBP exchange rate lower.
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Australian Dollar Tumbles; Markets Expect RBA Rate Cut after Latest Meeting Minutes
Meeting minutes from the Reserve Bank of Australia (RBA) have heightened market expectations of a rate cut in the August policy meeting. According to the report on the latest policy meeting;
‘The board noted that further information on inflationary pressures, the labour market and housing market activity would be available over the following month and that the staff would provide an update of their forecasts ahead of the August Statement on Monetary Policy. This information would allow the board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.’
Analysts have interpreted this as meaning the second quarter inflation data set for release on July 27th. The RBA has a historical precedent for cutting interest rates following weak inflation data. A Bloomberg survey of 25 economists found only one was not expecting a cut, while many economists believe there will be more than one cut over the next few quarters.
Capital Economics’ Australian and New Zealand Chief Economist Paul Dales explains;
‘The minutes of the Reserve Bank of Australia’s July meeting confirm what the financial markets already know – that the release of the inflation data for the second quarter on 27th July will probably prompt the RBA to cut interest rates from 1.75 per cent to 1.5 per cent in August. The markets have yet to realise that continued low inflation could yet result in rates falling to 1 per cent next year.’
As a result, the Australian Dollar registered a bearish slump against the majors.
Pound (GBP) Remains Weak; Better-than-Expected UK Inflation could Cause Problems
The Pound faced multiple headwinds yesterday, with the Australian Dollar’s severe weakness entirely responsible for the bullish GBP AUD gains. Approaching inflation data kept the UK unit weak, with further downward pressures coming from anticipation of the day’s International Monetary Fund (IMF) forecasts. Market consensus was that the Fund would cut its global growth outlook; the fact that ‘Brexit’ was likely to be blamed kept the Pound in a weakened position.
When the consumer price index figures were eventually released, they showed stronger growth pressures than had been forecast. The core index grew 1.4% year-on-year, rather than increasing just ten basis points to 1.3% as predicted. Non-core price growth advanced from 0.3% to 0.5%, again beating forecasts of a 0.1% acceleration.
Normally, better-than-expected price growth would be a very positive sign. However, because these figures are the last measure of inflation before the UK’s EU referendum took place, the next report is likely to show significant acceleration in price growth, thanks to the weakened Pound. Inflation is likely to quickly overshoot the Bank of England’s (BoE) targets, into the range in which rate hikes would usually be necessary. Weakening inflationary figures yesterday would have helped to curb the effect of skyrocketing inflation, whereas the better-than-expected figures are likely to exacerbate the problem.
Australian Dollar Pound (AUD GBP) Exchange Rate Forecast; UK Jobless Data Ahead
Today’s Australian data docket is fairly light, with just the Westpac Leading Index and the skilled vacancies growth for June scheduled for release. The ‘Aussie’ may enjoy a rebound today after yesterday’s bearish losses, although the prospect of an incoming rate cut will ensure that downward pressures remain firmly on the Australian Dollar.
The UK will release the majority of today’s data, with jobless claims, weekly earnings and unemployment figures all set for release. All of the data will have been collected before, or just after, the UK’s ‘Brexit’ vote decision was announced on the 24th of June, so the data will be somewhat moot. However, rather like yesterday’s CPI data, investors will be looking at the figures as a starting point. For instance, with many companies already expressing a likelihood to suspend hiring or reduce staff numbers, a weaker-than-expected claimant count rate for June will paint a gloomy picture for the state of unemployment going forwards.
AUD, GBP Conversion Rates
The Australian Dollar Pound (AUD GBP) exchange rate was trading between 0.5671 and 0.5707 during yesterday’s European session, while the Pound Australian Dollar (GBP AUD) exchange rate trended between 1.7504 and 1.7623.