GBP/AUD Rises After Kiwi Rate Cut

GBP/AUD Trading Above $2

The GBP/AUD rose to trade above $2 again on Thursday after the Reserve Bank of New Zealand announced a 25 basis point cut to their interest rate, weakening the Kiwi dollar and dragging the Aussie down in the process. It was the first rate cut by the Kiwi central bank in four years and both antipodean dollars have suffered as a result. The graph below shows GBP/AUD movement over the last week.

GBP/AUD 7 Days

It’s been a fairly choppy week for GBP/AUD, highlighted in the graph above. The Aussie initially weakened earlier in the week, after a speech delivered by Reserve Bank of Australia head, Glenn Stevens, at an Economic Society of Australia lunch in Brisbane. Mr Stevens told the society that there was still the potential for further loosening of monetary policy later in the year, having already cut interest rates twice this year, in February and May. The Aussie slipped as a result, resulting in a significant spike in GBP/AUD. The Aussie governor also attempt to jawbone the currency lower, highlighting the persistent weakness in the Australian economy.

We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth……a further fall in the exchange rate, which is not assumed in the [RBA] forecasts, would add both to growth and prices,” he said.

The Aussie dollar then regained all of the lost ground on Wednesday as unemployment figures revealed a drop of 0.1% in the unemployment, down to 6.0% from 6.1%. The statistics showed that 42,000 more people were in unemployment, almost a third of them finding full-time work. The Aussie dollar subsequently gained a cent against the pound, or 0.5%. Unfortunately for the Aussie, these gains were then wiped off by the announcement from the Reserve Bank of New Zealand. Australia’s neighbour across the Tasman Sea announced that the Kiwi base rate would drop by 25 basis points, to 3.25%, in an effort to tackle the problem faced by so many of the world’s major economies; low inflation. The Kiwi dollar lost over 2.5% following the announcement, dragging the Aussie down with it.

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