Both the Australian dollar and pound sterling have had less than desirable starts to their trading weeks. AUD has seen a hit to its domestic confidence as forecasts suggest the Aussie currency is likely to stay soft due to the bushfires. The pessimism surrounding the domestic performance is currently holding AUD back which is doing no favours for AUD/GBP exchange rate. Meanwhile, GBP has its own issues to deal with as the currency saw a slip against both the Euro and the US dollar as BoE rate cut expectations grew.
Aussie Bushfires Look to Deflate Domestic Confidence for Australian Economy
The Australian Dollar looks to continue its current state of weakness on global currency markets. The currency is faced with a supportive global picture but this contrasts to growing domestic headwinds which have seen the Reserve Bank of Australia’s (RBA) chance of making an interest rate cut rise to a 50-50 chance in February. AUD has been hit by two opposing forces lately, with the first being an improved global outlook which came about after the Phase one trade deal between the US and China. This was in favour of the upside, whilst the downside sees the bushfires rage on and are tipped to have a notable short-term negative impact on Australia’s economy.
David Plank, Head of Australian Economics at ANZ suggested that the size, intensity and duration of the Aussie bushfires means that they will almost certainly impact the economy on a larger scale than previous fires. The pressure from the fires have seen the RBA questioned about their next move regarding monetary policies. Plank also mentioned that the impact of the fires has been enough for the RBA to conclude that a gentle turn in the economy is continuing, and thus suggests that the RBA looks more likely than not to make the cuts in February.
Sterling Slips Against Euro and USD After Economy Shrinkage
For GBP, it was trading in the red against the Euro, USD and other major currencies to start the week. This came after the market heightened its expectations of a Bank of England (BoE) rate cut due to the sharp slowdown of the UK economy in 2019. A member of the BoE’s Monetary Policy Committee noted that he would vote in favour of a cut should further economic data remain sluggish. GDP data for the UK out yesterday morning showed that the UK economy had contracted 0.3% for November. This, paired with the unease within the BoE has lead to GBP taking a sharp turn for the worst.
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