On Tuesday this week the Reserve Bank of Australia cut interest rates to an all time low of 2.25%. This came in unexpected as rates were meant to stay on hold; consequently the AUD/GBP pushed almost 2 % lower throughout the day.
The push lower only lasted 12 hours however, as overnight the AUD gained back 80% of the losses made in the day of the cut. This means that there was an overreaction due to the unexpected news from the RBA. This typically happens with these types of events as rational investors seek to maximise yield. As the AUD dropped 25 basis points unexpectedly, investors tend to move their AUD investments to other international investments.
Today the AUD is relying on Australia’s release of the Retail Sales Figure. On the expected figures, the AUD should receive some much needed buoyancy. The expected figure is set to be 0.3% from 0.1% last month. This data figure has been on a downward trend since November and if we get the expected figure, potentially the 3 month trend may have been broken.
Another release that is expected today is Housing Industry Association release of the Australia’s New home Sales. Today there is no published expectation for the figure; however, it should remain at par around 2%. Next month we should see this figure pick up as the positive externality from the Interest rate cut should start taking effect in both house prices and sales.
Tonight the UK has their Interest rate decision; the interest rates are expected to stay on hold at 0.5%. Last month, the Governor of the Bank of England, Mark Carney suggested that rates will continually to be on hold until at least late 2015. To back this statement up, when the votes were counted two weeks ago; all members of the BoE agreed that rates will be on hold. This was a change from the usual as typically two members would vote for Interest Rate hikes.
We are expecting some speculation from the Monetary Policy Committee tonight after the Interest Rate announcement. The GBP/AUD is strongly sensitive to Interest Rate speculation, typically if the expectations are brought forward the GBP tends to rally against the AUD.