Australian Dollar Rises in London On Cautious Optimism From The RBA

The central bank story on both sides of the Pound to Australian Dollar pair amounts to a tale of two cities at present.

The Australian Dollar rose during early trading in London Tuesday after the Reserve Bank of Australia was seen taking a more upbeat view of the economy during its latest monetary policy statement and signalling its ease with recent currency strength.

August’s monetary policy decision saw the cash rate left unchanged at 1.50%, as expected, although the bank made a series of observations about the current health of the Australian economy.

“There was little substantive change to the RBA’s post meeting statement, although in our view the Bank’s outlook on the domestic economy seemed slightly more positive,” Felicity Emmett, an analyst at ANZ Research.

Among them, the RBA noted an improvement in the non-mining investment outlook, a steady labour market and a cooling of the housing market in Sydney - which had previously been a source of concern for policy makers.

Governor Philip Lowe’s post-event remarks focused on the dangers of further lowering rates, which was taken as more hawkish tone which aided the Australian Dollar higher.

The Australian Dollar rose 0.29% against the US Dollar during the London morning, trading up to 0.7964, extending its year to date gain to 10.61%.

This is while the Australian Dollar to British Pound exchange rate rose 0.33% to 0.6168, bringing its year to date gain to 5.69%, with the move being aided by poorer than expected economic data emerging from London on the morning. The Pound to Australian Dollar rate is therefore at 1.6215.

“In comparison to the RBNZ which recently stepped up verbal intervention, the RBA does not appear as concerned by domestic currency strength,” says Lee Hardman, an analyst at MUFG.

Some economists and strategists had pondered the RBA’s likely view of the Australian Dollar given its strong run in the year to date, which has been driven by a recovery of key commodity prices and the continued stability of the Chinese economy.

“We continue to expect the RBA to keep the cash rate on hold for the foreseeable future....The outlook for consumer spending remains a key uncertainty given high debt levels and our expectation that wage growth only very gradually recovers,” says Emmett at ANZ.

The central bank story on both sides of the Pound to Australian Dollar exchange rate amounts to a tale of two cities at present.

On the one hand, the RBA is expected to keep rates on hold for a while longer but is not seen loosening policy further, as the Australian domestic economy firms in the wake of the commodity downturn.

While, on the other hand, the Bank of England sits caught between a rock and a hard place. The fall in the value of Sterling since the Brexit referendum has temporarily pushed up inflation, leading some policy makers to call for rate hikes, while the economy has shown signs of slowing in recent months - which makes tightening monetary policy difficult.

Pound Sterling Live reported on the latest volley of UK economic data Tuesday, which showed growth in the all-important services sector slowing during August.

Tuesday’s data from the UK came closely on the heels of Monday’s news of a continued slowdown in the domestic construction industry, reported by Pound Sterling Live, which itself followed a brighter set of manufacturing numbers.

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