The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate drifted to a low of 0.5596 during the Australasian session as investors ditched the ‘Aussie’ in reaction to the Reserve Bank of Australia’s latest interest rate decision. Whilst the central bank maintained a policy of steady interest rates, it offered a comparatively pessimistic view of Australia’s economic prospects and intimated that the strength of the Australian Dollar is contributing to slower growth. The RBA held the cash rate at 2.5%, as expected by economists, and RBA Governor Glenn Stevens asserted that holding interest rates at record lows is helping to bolster the Australian economy. When speaking of the labour market, Stevens referenced some recent improvements in indicators, although he acknowledged that it would probably be some time before the unemployment rate declined steadily. In reference to inflation Stevens commented; ‘Recent data showed an increase in inflation, with both headline and underlying measures affected by the decline in the exchange rate last year.’ But the central bank chief went on to indicate that the Australian economy is likely to expand at below trend levels for some time to come and that the strength of the Australian Dollar is damaging the nation’s prospects. The GBP/AUD pairing achieved a high of 1.7861. The AUD/GBP pairing achieved a high of 0.5622 In the opinion of economist Paul Bloxham; ‘The currency is constraining Australia’s great rebalancing act. It seems pretty clear that low interest rates are doing what they’re supposed to be doing, they’re supporting the housing market, they’re supporting an upswing in residential construction, but growth is not completely rebalancing because the Aussie Dollar remains too high. That is the ongoing theme from the RBA and while the Aussie Dollar remains high, the RBA is unlikely to do anything with interest rates, so we think they’ll be on hold until the middle of next year’. During the European session the Pound managed to extend gains against the Australian Dollar as the UK’s Construction Output report surprised to the upside. The Markit PMI jumped from 62.4 to a seven-month high of 64.0 last month instead of softening to 61.4 as economists anticipated. Markit economist Tim Moore issued the following statement with the figures; ‘UK construction firms saw one of the sharpest rises in output for seven years in August, with increasing workloads driven by an array of factors including surging homebuilding activity, greater infrastructure spending and renewed confidence within the commercial development sector.’ Australian Dollar to Pound Sterling Exchange Rate Forecast This result goes some way to making up for yesterday’s disappointing UK Manufacturing PMI and gave the Pound some support ahead of tomorrow’s UK Services PMI – the most important of the three gauges. Further Australian Dollar to Pound Sterling (AUD/GBP) exchange rate movement could be caused overnight by Australia’s AiG Performance of Services Index and the nation’s second quarter growth data. Positive results could help the Australian Dollar recover losses.

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