GBP/AUD is in free fall this week. Yesterday, the price tumbled by 1.36%. Currently, the pair is trading at 1.9300, down 0.56% as of 6:30 AM UTC. The sterling has lost its gains against the Aussie since last Thursday.
The pound is weakening amid fears of a hard Brexit after UK Prime Minister Boris Johnson said yesterday that Britain shouldn’t abide by European single market rules but rather seek a Canada-style agreement.
Elsewhere, the Aussie is backed by central bank’s confidence. Earlier today, the Reserve Bank of Australia (RBA) maintained the interest rate at the record low at its first meeting this year. Policymakers were quite optimistic despite the bushfires and the virus outbreak. The central bank kept the rate unchanged at 0.75%, in line with analysts’ expectations. The bank said that the low rate should help the country achieve its inflation and employment goals. The RBA maintained its outlook for economic growth at previous levels – 2.75% for this year and 3% for 2021.
RBA Governor Philip Lowe said that the positive outlook was backed by “the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction.”
While a majority of analysts surveyed by Reuters expected the RBA to maintain its benchmark rate unchanged, they anticipate that the central bank would slash the rate to 0.5% in April. Some economists even expect that the cash rate would drop to as low as 0.25% by the end of this year, as the country will have to address the consequences of one of the worst fire seasons in its history. Last year, the bank cut the rates three times.
Besides the bushfires, the economy in Australia is also hit by the coronavirus outbreak in China, which is Australia’s largest trading partner and source of tourists.
Lowe said that the coronavirus “is having a significant effect on the Chinese economy at present. It is too early to determine how long-lasting the impact will be. The board will continue to monitor developments carefully, including in the labor market. It remains prepared to ease monetary policy further if needed.”