The Reserve Bank of Australia (RBA) has been considering an interest rate cut for quite some time and I think tomorrow we’ll see this finally take place. The expectation is that the cash rate will be cut its lowest level on record to 1.25%.
|Currency Pair||% Change (Month)||Difference on £200,000|
This is likely to cause the Australian dollar to weaken which will be very good news for Australian exporters. If the Australian dollar does begin to weaken again then it will help with manufacturing exports as well as agricultural exports.
However, a weakening Australian dollar will likely increase inflation and to combat rising inflation a rate hike is usually the solution. Therefore, if we do see further rate cuts during the course of this year then inflation could rise too quickly causing a problem for the Australian economy.
Expectations are for further interest rate cuts to come in August and also November and I think if the RBA hint towards this happening then this may cause the Australian dollar to weaken against the pound.
On Wednesday Australia will announce its latest GDP levels with expectations for growth from 2.3% to 2.5% for year on year. If this comes out lower than expected then this will justify the RBA’s rate cut and I think we could see GBP/AUD exchange rates move in an upwards direction.
However, what has been the over-riding factor recently in terms of the Pound vs the Australian Dollar has been the current state of the political landscape in the UK which shows little signs of improvement.
Therefore, although some expect to see the Pound make some gains if the RBA cuts rates I think the improvement may not be as large as it usually would.
If you’re in the process of selling Australian Dollars it may be worth getting this organised in the near future and considering your position and whether to take advantage of current levels.
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