The British pound was higher against the Australian dollar on Tuesday.
- Reserve Bank of Australia keeps interest rates on hold
- UK Chancellor to deliver new spending plans Wednesday
- Melbourne to enter 6-week lockdown midnight July 8.
GBP/AUD was up by 126pips (+0.68%) to 1.8032 as of 4pm GMT. For the week, the British pound-Australian dollar exchange rate is up +0.25%.
The currency pair bolted above 1.79 early on and carried on to comfortably sit above 1.80 towards the end of the day. Yesterday it had dropped -0.40%.
GBP: Prospect of fiscal boost lifts Sterling
The pound is getting a lift on hopes for a new fiscal boost to the UK economy tomorrow in announcement from UK Chancellor Rishi Sunak.
Sterling had been buoyed but subsequently dropped on Boris Johnson’s ‘New Deal’ spending package, which only ended up meaning 0.2% of GDP spending being brought forward into 2020 rather than any new spending.
More broadly, the dovish-leanings at the Bank of England, including the consideration of negative interest rates have been a weight on the pound. Fiscal stimulus to match the monetary devaluation would be a positive for the British currency.
AUD: Melbourne to re-enter 6-week lockdown
The Australian central bank – the RBA – left interest rates at a record low of 0.25% as expected on Tuesday and general did little to surprise markets and shift the dial for the Aussie. It will also maintain its 0.25% target on 3-year yields and vowed to increase bond purchases again if needed.
The RBA also maintained a cautiously hawkish outlook for the economy saying the downturn has been less severe than earlier expected, although adding that the Economy is still going through a ‘very difficult period’.
Outside of central bank decisions, the measures implemented to combat a second wave of the pandemic in Melbourne has weighed on the Aussie currency. It is a local lockdown, rather than a national one but Melbourne is the second largest city in Australia with nearly 5 million people and approximately 20% of the population, meaning a big hit to the economy while locked down.
