Todays AUD report looks at rising commodity prices due to Iron and Copper exports, the RBA have tactically jawboned the currency for the short term keeping GBPAUD exchange rates below the 2 AUD mark.

Australian Interest rates on hold for 11th month

One of the biggest factors keeping the Australian dollar on the weaker side was the prospect of an interest rate drop at some point this year. So far that has failed to materialise following a rise in the value of some of the commodities which Australia exports to the wider world including Iron Ore and Copper.This increased demand has removed the need for any interest rate cuts to stimulate the economy although interestingly last night RBA Reserve Bank of Australia Governor Glenn Stevens made an attempt at jawboning the currency stating ‘an appreciating exchange rate could complicate the adjustment under way in the economy’.

Jawboning is the act of talking down a currency to encourage it to weaken thereby removing the need for any physical policy action. It is not in the RBA’s Interest to have a strong currency and it might be that if the Aussie keeps rising they will be interested to cut rates to stifle this strength.

When will the Australian dollar weaken?

The weak pound and lack of interest rate cuts down under have kept GBPAUD rates at 1 year lows for the last few weeks wrecking plans for clients who had felt it was impossible the rate would ever become less than 2 AUD for 1 GBP. It does appear that longer term the tide will turn for the Australian dollar as last night in their RBA Rate Statement there was hinting at cuts as early as May and financial markets are pricing in a 50% chance of a cut by August.

GBPAUD buyers will of course have to navigate a very choppy few months owing to the Brexit drama but assuming a ‘Remain’ vote and continued pressure on the Australian currency from investors seeking to benefit from its higher interest rates, there is scope longer term for the GBPAUD rate to rise back to 2. The flipside of course is the rate is highly likely to get much worse in the short term because of GBP weakness and that were it to be a Brexit outcome the rates could easily return back to much lower levels of say 1.70 or even 1.60.

With the build up to the EU Referendum could see GBPAUD exchange rates drop to as low as 1.60. If you are looking to buy Australian Dollars with Sterling now could be a good time to get in touch with us. Call our trading floor on 01494 725 353 or email me here.

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