RBA maintains hawkish tone

The Reserve Bank of Australia Governor, Michele Bullock announced early this morning that the RBA held their base rate at 4.35% when they met earlier. She also voiced her concern that the rate of inflation ‘still has a 4 in front of it’. The RBA has a target of 2%, so, given the Governor’s concerns, we are likely to see the Aussie base rate remain higher for longer. The Australian parliament is also expected to pass a contentious bill to lower taxes for those on low incomes and trim benefits to high earners. On paper, that ought to be inflationary, making the RBA’s dilemma just a little more complicated. The Australian dollar had strengthened ahead of the RBA announcement but it has given up much of that gain and the GBP/AUD rate is back up to AUD 1.93 again. That is partly due to improved UK retail sales data but more of that below.

GBP gains on data improvements

UK purchasing managers indices were better than forecast yesterday and higher than the previous month. The January data showed a service sector index of 54.3 and a composite index of 52.9. We also had better-than-expected retail sales data overnight. The British Retail Consortium published a retail sales monitor which showed a growth rate of 1.4% in the year to Jan; Down from December’s 1.9% increase but better than the market forecasts. Sterling’s performance has been mixed overnight. The GBP/USD rate is half a cent lower at $1.2560 and the GBP/EUR rate is also half a cent lower at €1.1670. These slightly negative overall movements mask some very obvious sterling buying interest which has seen the pound pick up a little this morning on most fronts. We will get the construction sector purchasing managers index this morning. That is also forecast to show improvement and a reading of anything above 47.2 is likely to bring further GBP buying into the market.