GBP/AUD: Pound weakness offer Bushfires relief for Aussie

The British pound lost ground against the Australian dollar on Thursday after Bank of England Governor Mark Carney talked down the prospects of a pickup in UK economic growth in 2020 at a speech in London. The governor’s comments outweighed weakness in the Aussie dollar, which is still under pressure from the economic damage being caused by wildfires throughout the country. More broadly markets were feeling a sense of relief after the US and Iran avoided wider conflict by stopping further military action for the time being.

GBP/AUD was lower by 72 pips (-0.38%) to 1.9004 as of 2pm GMT, offering a pullback to gains in the currency pair over the past week.

The Aussie

While its exchange rate with the British pound saw the Australian dollar appreciate on Thursday, it was largely a function of Sterling-weakness as opposed to Aussie-strength. The wildfires in Australia coupled with a trade balance below expectations saw the AUD fall or stagnate against other currencies. The Australian trade balance for November was 5800M versus 5915M expected. The wildfires are an especially hard to predict natural disaster and indications are for the moment that it is getting worse. On Thursday authorities issued more warnings and evacuation notices to citizens in areas worst hit. Softer data and the impact of the bushfires put together increase the odds that the Reserve Bank of Australia (RBA) opts to cut interest rates at its next meeting. Australian interest rates are already at the lowest on record.

The pound

The outgoing Bank of England governor made his dovish remarks during a speech in London. Governor Carney’s worries centred around  the lack of space for the Bank of England (BOE) to cut interest rates in case the expected economic recovery this year does not materialise. Economists have mostly been improving their outlook for the UK after December’s decisive election result. Interest rates have been at or near a record low through Carney’s over six-year tenure as BOE Governor. Carney indicated policymakers were debating the “relative merits of near-term stimulus” in order to give the expected economic recovery a boost. He also said that boost could include interest rate cuts or more quantitative easing (QE).


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