Dovish RBA February Meeting Minutes Leave AUD/GBP Exchange Rate Stumbling
The Australian Dollar Pound Sterling (AUD/GBP) exchange slipped on Tuesday as markets reacted to some cautious statements revealed in the latest Reserve Bank of Australia (RBA) meeting minutes and the current strong performance of the US Dollar (USD)
February’s RBA meeting minutes did not reveal a great deal of new information, but they did underline the fact that that the central bank is relying on a pickup in wage growth in order to deliver a boost to households and effectively lift inflation.
Ultimately – as with other communications from the bank in recent times – there was no indication of any perceived urgency to ‘follow suit’ with other central banks and tighten policy.
This is largely due to uncertainties that persist regarding consumer financial wellbeing, inflation, and the housing market.
The minutes read:
‘Further progress on these goals was expected over the period ahead but the increase in inflation was likely to occur only gradually as the economy strengthened. There was still a risk that growth in consumption might turn out to be weaker than forecast if household income growth were to increase by less than expected’.
This limited the upward potential of the ‘Aussie’ Dollar, with the current surge in demand for the ‘Greenback’ also keeping things firmly in Sterling’s favour.
Hope Builds for Bespoke UK Single Market Access – Pound (GBP) Exchange Rates Climb
The Pound broadly rallied on Tuesday, bolstered by news that the European Parliament is preparing to negotiate ‘privileged’ single market access for Britain post-Brexit.
The European Parliament is compiling a 60-paragraph document that will outline its desire for an ‘association agreement’ with Britain after Brexit has occurred – a wild break from the previous stance of the EU that insisted on a strict Canadian, or Norwegian style trade plan.
A source close to Guy Verhofstadt confirmed the EU parliament’s intentions, stating:
‘It is correct that members are working on a resolution proposal for the framework of future relations with the UK likely to be debated and voted during the March plenary session’.
This news renewed hope for UK and EU businesses that trade could be set to continue effectively after Brexit has taken place, with the possibility of a framework for cooperation also renewing hope that elements of the transition deal could soon reach conclusion.
This outlook was also supported by German Chancellor Angela Merkel, who spoke last Friday announcing that she was open to the UK receiving a bespoke trade deal.
Combined, this optimism put further pressure on the AUD/GBP exchange rate.
AUD/GBP Exchange Rate Forecast: Australian and UK Wage Growth in the Spotlight
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate could see volatility tomorrow as markets react to wage growth readings for both the UK and Australia.
Australia’s wage price index will be released first, with a year-on-year Q4 forecast of 2.0% – consistent with the previous period, whilst the UK’s are expected at 09:30am GMT, with weekly earnings expected to print at 2.5% – on par with the previous period.
The Bank of England (BoE) will be studying these readings carefully, with markets liable to price in a rate hike in May from the BoE if UK wage growth is finally starting to accelerate.
Australia’s wage readings are also highly significant in that the RBA needs wages to lift in order to meet their inflation forecasts.
In this respect, a disappointing reading could make it certain that Australian interest rates won’t be increased for the foreseeable future.