Aussie Dollar Gains on Neutral RBA, Pound May Rise on Soft PMI
- Aussie Dollar rose after broadly neutral RBA policy announcement
- Gains might reflect short-term dovish tone bets and may soon fizzle
- Pound could rise if soft PMI is seen helping to soften Brexit rhetoric
The Australian Dollar rose after the RBA kept its official cash rate unchanged at a record-low 1.50 percent, as widely expected. The statement accompanying the announcement was firmly neutral, reinforcing the likelihood that the central bank will remain on hold for some time yet. With that in mind, the currency’s slight uptick may reflect near-term bets on a more dovish tone. Significant follow-through seems unlikely.
UK Manufacturing PMI data headlines a relatively muted European data docket. Expectations point to a slight slowing in the pace of factory-sector activity in April compared with the prior month. UK economic news-flow has increasingly underperformed relative to consensus forecasts since mid-February, hinting that analysts’ models are perhaps overly optimistic and opening the door for a downside surprise.
The implications of a soft outcome for the British Pound may be somewhat counter-intuitive. As noted previously, the markets are all but certain that the BOE is on hold for the foreseeable future. Indeed, a rate hike is not priced in through 2018. With that in mind, signs of slowdown may prove supportive for Sterling if they help soften the tone of Brexit rhetoricahead of a general election in June.
What is most important in shaping GBP trends through mid-year? See our forecast to find out!
** All times listed in GMT. See the full DailyFX economic calendar here.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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