The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending lower at the start of Tuesday’s European session following the Reserve Bank of Australia’s (RBA’s) interest rate decision. While the central bank kept rates on hold as expected, some of the language used by Governor Philip Lowe dampened markets.
The RBA Chief stated:
‘One continuing source of uncertainty is the outlook for household consumption.’
This comment comes just days after the Australian economy posted the most disappointing three-month stretch of Retail Sales data in seven years.
When it came to inflation, the central banker said:
‘Inflation is likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures, especially in retailing.’
The central bank is in a tricky position as household debt is sky high at 194% of income, and wage growth is lethargic, registering levels of growth last seen in 1991 when Australia experienced a recession. Another aspect in the mix is the inability for businesses to pass on cost rises to consumers in case they lose business.
It’s now thought that the RBA won’t choose to hike interest rates again until late next year, but the economy has a lot to do before policymakers are likely to pull the trigger.
JP Morgan Chase & Co, Head of Fixed Income and Currency Strategy for Australia, Sally Auld commented:
‘Until policymakers can be confident that the consumer can hold in and the economy is growing at a rate to generate some demand-pull inflation, rate hikes remain a distant prospect.’
Meanwhile, the Pound weakened last week after the Bank of England (BoE) hiked interest rates for the first time since the Global Financial Crisis. Investors currently anticipate only a few more interest rate rises in the next few years.
The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is currently trending at 0.5824. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is residing at 1.7169.