Australian Dollar Weakens after US Fed Comments

The pound made excellent gains against the Australian dollar yesterday with gains of over 1%. One of the reasons for this sudden weakness in the Aussie follows US Federal Reserve’s Dennis Lockhart comments who suggested that a US rate hike in his view was very much on the horizon later this year.

The Australian dollar is heavily impacted by interest rate decisions in the US and this new rhetoric could be the trigger for change.

Dennis Lockhart’s comments may just be starting to be realised and we could see some further weakening in the Aussie from here on as the markets begin to expect action from the US Fed. For the moment the Australian dollar continues to maintain the higher ground against the pound with some excellent opportunities for clients looking to sell Australian dollars with rates having touched a three year high for AUD GBP. This morning is seeing a strong rally for the Australian dollar following surprisingly better unemployment data.

Data for Australia is light next week as we approach the end of the month with just construction data and the Conference Board (CB) leading indicator which measures overall economic activity.

Despite the recent interest rate cuts this year from the Reserve Bank of Australia (RBA) they are not having the desired effect of weakening the dollar further, something we saw very strongly after the interest rate cut in may for example. The RBA would appreciate a weaker dollar as it is good for exports but the recent rate cut has not made that kind of impact. Normally an interest rate cut would see funds move away from Australia and see the dollar weaken. This potential momentum from the US and any further rate cuts down under below 1.5% could see a shift of funds away from Australia and back to the US Dollar.

If you have any questions about todays reports or would like to talk to us regarding a currency exchange, call our trading floor on 01494 725 353.

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