The Australian dollar has found some support as the markets begin to price in the prospect of an interest rate cut in the US which may come as soon as next month. With a sudden slide in the US outlook the US Federal Reserve is expected to cut interest rates to try and reignite the US economy.

Currency Pair% Change (Month)Difference on £200,000
GBPAUD1.65%AUD $6,020

There is some expectation that there could even be a 50 basis point cut at the July meeting. Such a move could see a big shift with investors moving funds away from the US to the perceived riskier currencies to include the Australian and New Zealand dollars. These commodity currencies would likely benefit from such a move. However it is also expected that the Reserve Bank of Australia will look to cut interest rates again having cut rates for the first time in almost 3 years to a record low of 1.25%.

For Australia there is a real chance that there could be three interest rate cuts in a row. The pace of these cuts combined with the actions from the US Fed will likely see volatility for Australian dollar exchange rates in the months ahead. The problem for Australia is that the lever of interest rates is running out of room and if the economy doesn’t pick up it may even have to explore alternative measures such as Quantitative Easing, something that could see the Australian dollar fall in value.

Conservatives defeated in an attempt to call a snap election

GBP AUD – British Politics

The pound to Australian dollar is may well see considerable market volatility in the weeks ahead on the back of all the latest developments in British politics. For the time being the leadership contest between Conservative MP’s Boris Johnson and Jeremy Hunt continues with a new Prime Minister expected to be confirmed 23rd July.

Whilst Boris Johnson remains the favourite so far, the outcome will very much depend on how the Conservative membership votes. Whilst many will argue that a new leader may provide some stability for the country, the two different approaches to Brexit by the prospective Prime Ministers will likely see the pound travel in different directions.

Boris Johnson whilst favouring a deal between Britain and the EU has made it abundantly clear that the UK will leave the EU on 31st October. He stated yesterday “We are getting ready to come out on 31st October. Come what may. Do or die.”

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