The AUD found some welcome support overnight following yesterday’s sharp downturn against GBP, with the GBPAUD interbank rate trading around 1.85 at the start of European trading.

Currency Pair% Change (Month)Difference on £200,000
GBPAUD2.1%$8,020

It is a strange time for the Australian economy, with some recent positive data showing signs of an economic upturn but a major slowdown in the Chinese growth likely to have a negative impact on Australia’s affluent export industry.

This has led analysts questioning whether the Reserve Bank of Australia (RBA) may even be set to cut interest rates at their policy meeting next week, to counter the threat of an export driven stagnation, and also the current high inflation figures.

It is anticipated that the RBA will avoid cutting rates from there already record low of 1.5% but any hint towards a hike over the coming months, is likely to be determined by any prospective upturn in the global markets, which are key for commodity-based currencies like the AUD to prosper.

Looking at the positives, the improvement in economic conditions has seen Australia’s Manufacturing figures rise to a seven month high at 54.8. Production, sales, exports and new factory orders all improved in April but with pressure likely to build on exports due to a softening in demand from China, Australia’s largest trade partners, are some of these figures giving investors a false sense of hope?

 

AUD Forecast – Manufacturing hit 7 Month High

What do the RBA forecast for the Australian economy over the coming months?

The answer may lie in RBA governor Philip low’s recent comments, when he highlighted what the Central Bank felt was likely to be a gradual improvement in the Australian economy over the next two quarters.

Whilst his comments were received well by the markets, they do not indicate a sudden change in the RBA’s monetary policy stance and as such, I would expect interest rates to be keep on hold at their record lows, for the 29th month in a row.

 

Any indication in his speech next week, about the possible negative implications of the current stagnation in the Chinese economy, may also put further short-term pressure on the AUD and help facilitate further improvement for sterling.

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