Australian Dollar Jumps Against Pound Sterling, But RBA Minutes Hint that August Rate Cut Remains a Close Call

The pound to Australian dollar exchange rate has given back some of its recent gains after the AUD was boosted by the contents held in the minutes to the RBA's June meeting.

The Reserve Bank of Australia (RBA) are clearly not too worried with the trajectory the Australian economy is taking at present.

The tone and language used in the minutes were very similar to that used in the post-meeting statement, suggesting only a mild easing bias.

"The strength in the economic data is clearly providing some offset to the Bank’s concerns about very low inflation," says Felicity Emmett at ANZ Research.

With no imminent sign of further interest rate cuts the AUD caught a bid and has edged higher against the dollar and pound sterling.

However, it could be wrong to assume that the RBA is done with easing.

ANZ Research have told clients that they are factoring in another rate cut this August:

"The ongoing lack of an explicit easing bias in the RBA’s communication means that an August rate cut is a very close call. It’s likely to come down to the wire, with the Q2 CPI report on 27 July the clincher.

"We continue to expect a further cut given the size of the downgrade to the Bank’s inflation forecasts and the fact that the mid-point inflation forecast remains at or below the lower bound of the 2-3% target band for the entire forecast period."

If ANZ are correct, the Australian dollar's strength could prove fleeting.

GBP/AUD Takes a Break from it Rally

The GBP/AUD pair had started the new week higher, moving to 1.9564 with markets apparently buying sterling in anticipation of a Remain victory to Thursday's vote. 

However, it remains far too soon to call the end of the pair's declines noting the dominant trend since August 2015 as being one of decline.

The latest leg lower started after the exchange rate peaked in the 2.05s and then rolled over on May 26.

It fell all the way down to 1.9016 before making a small two-day pull-back to reach its current position just below the 50-day moving average at 1.9413.

Major releases for the Australian Dollar in the week ahead, include May New Home Sales on Tuesday and Private Sector Credit on Wednesday.

Data will be key for the Australian dollar as markets try and guess whether the Reserve Bank of Australia (RBA) will feel it needs to cut rates once more.

We have noted that the longer-term outlook for the Australian dollar remains soft, based on the assumption held by many major institutions that the RBA will indeed cut rates once more.

Latest Pound / Australian Dollar Exchange Rates

	Live: 2.0145▼ -0.08% 12 Month Best: 2.1645
*Your Bank's Retail Rate	1.946 - 1.9541
**Independent Specialist	1.9863 - 1.9943 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The Big Event for GBP is Here

The main event for the pound is the UK referendum on Thursday June 23.

Campaigning in the EU referendum has been suspended after the shocking murder of Labour MP Jo Cox, a leading advocate of the 'Remain' camp.

Her murder is thought to have been politically motivated after it was revealed her killer shouted, "Britain first" just before attacking her.

In an initial hearing at Westminster Magistrates Court, when asked his name, the man answered, "Death to traitors, freedom for Britain."

Some think the horrific incident may garner more support for 'Remain' out of sympathy for the murdered MP. This would be a GBP-positive outcome.

Recent polls released before the killing confirm a lead for the 'Remain' camp, however the two sides are essentially level if we look at the poll of polls.  

The first exit poll estimates be released at 00:30 of June 24, with further estimates at 06:00.

In their weekly outlook report Capital Economics argue a Brexit has not been anywhere near priced in, suggesting much potential volatility in the short-term, but a subsequent recovery as post-Brexit scenario fundamentals exceed 'doom-laden' expectations:

"It appears that markets are still far from fully pricing in a Brexit. This suggests that the short-term market reaction following a vote to leave the EU on June 23rd would be substantial - although the turmoil might prove relatively short-lived, if we are right in expecting the resulting hit to (economic) activity to be smaller than many have warned."

RBA Minutes Dominate AUD Calendar

In terms of the Australian side of the GBP/AUD coin, data is second tier and it is the RBA Board Minutes being released on Tuesday that are likely to draw attention.

The minutes are expected to outline in more detail the Bank’s more upbeat assessment of growth.

"The market will be very alert to any indication in the Minutes that recent indicators of economic activity provide more comfort on this score, calling into question the likelihood of multiple further RBA easing, or even one more," says Craig Ebert at BNZ.

Such a scenario would be AUD-positive in nature and could well prompt a fresh bout of strength for the currency.