The Australian Dollar Pound (AUD GBP) exchange rate was trending tightly during yesterday’s European session thanks to weak inflation expectations.
The quarterly Reserve Bank of Australia (RBA) Statement on Monetary Policy, released yesterday, continued to see weak inflation, in spite of the fact interest rates had been cut to a fresh historical low in order to boost consumer price growth.
According to the RBA;
‘The large exchange rate depreciation since early 2013 is likely to continue boosting the prices of tradable items as increases in import prices are gradually passed through to the prices paid by consumers. However, domestic factors, such as heightened competitive pressure in retail markets and low wage growth, have put downward pressure on retail inflation over recent years and are expected to persist for some time.’
The statement also noted that Australia was experiencing low wage growth as a result of spare capacity in the labour market, a decline in short-term inflation forecasts and declining terms of trade, pressuring company profits.
Markets are still expecting more interest rate cuts from the RBA, including another one this year. A further cut has been priced in for 2017, making expectations for Australia’s official cash rate around 1% in the medium-term.
A key report into the health of the UK labour market released yesterday held dovish conclusions. The Markit/REC Report on Jobs showed the strongest decline in permanent placements since the financial crisis in 2009, with Brexit-based uncertainty frequently mentioned by panellists. Recruitment consultancies in London reported the biggest impact.
While temporary and contract staff billings did increase, the pace was the weakest climb seen in ten months. An REC press release noted that;
‘Temporary/contract staff billings continued to rise in July, with some panellists indicating that clients had shifted focus towards short-term staff amid an uncertain economic climate.’
Commenting on the report, Chief Executive of REC Kevin Green stated;
‘The UK jobs market suffered a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009. Demand for staff remains strong with vacancies continuing to rise, but the sharp fall in placements suggests that businesses are highly cautious about committing to new hires. Economic turbulence following the vote to leave the EU is undoubtedly the root cause.’
The Pound was still weighed down by Thursday’s Bank of England (BoE) policy decisions. Markets had confidently expected increased stimulus, but the actual measures taken were far above median expectations. QE was restarted thanks to an additional £70 billion in asset purchases, including a £10 billion allocation for corporate bond purchases.
The Australian Dollar could start Monday’s session on the back foot, thanks to the release over the weekend of Chinese trade figures, including export and import growth and the monthly trade balance for July. Strong trade figures, in particular imports, bodes well for the Australian economy due to the large amount of trade conducted with China. Weaker figures could point to softening demand for Australian goods and services, putting pressure on the Australian economy.
Later, the only Australian data on the calendar for Monday is the ANZ job advertisements for July. There is no UK data set for release on Monday.
The Australian Dollar Pound (AUD GBP) exchange rate was trending in the region of 0.5817, while the Pound Australian Dollar (GBP AUD) exchange rate traded around 1.7189, during yesterday’s European session.
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