The RBA's decision to cut interest rates has had limited impact on weakening the currency, what options does the new Governor have?
The Pound rallied yesterday against the Aussie yesterday following on from Chinese inflation data which caused a push for Sterling at the end of last week. China is Australia’s biggest trade partner, so if the Chinese catch a cold expect the Australians to follow suite. This was a much needed spike considering the substantial fall for Sterling following the vote to leave the EU. GBP/AUD is currently close to some of the best levels to purchase AUD in the last eight weeks, briefly touching 1.77 during yesterdays trading session.
With the Australian Dollar currently experiencing a bout of strength, it is causing damage to Australia’s exports. The Reserve Bank of Australia (RBA) has recently cut interest rates but it has not had the desired effect. This could be a real problem for the soon to be Governor of the RBA, Phillip Lowe who will take over from Glenn Stevens on 17th September. There is already a problem with housing demand and housing costs around the cities of Melbourne and Sydney. People are choosing to settle in these locations in the hope of higher wages. It is similar to the housing situation in London.
If interest rates are cut further by the RBA in an attempt to make exports more appealing to Australia’s trade partners it will only make the housing situation worse. Personally, I feel the Australian Dollar is chronically overvalued against the pound and although a pound recovery will be slow following Brexit, I think we will see GBP/AUD above 1.80 sooner rather than later. If you are an Aussie seller I would be taking advantage of current levels.
There is little data of consequence released down under this week. The key data release will be Australian unemployment figures on Thursday at 02.30. Unemployment is an important statistic to gauge the health of an economy, the general consensus is there will be little change, but if there is any variation on this expect a swing on GBP/AUD.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353.
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