The GBP/AUD rate climbed nearly 2% yesterday as the chance of a rate hike this year was all but ruled out by the Reserve Bank of Australia. Instead, Governor Philip Lowe suggested that there was a chance that the Central Bank may need to cut the interest rate in 2019. This had an instant reaction and caused the Aussie to fall across the board.
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Tomorrow morning the Reserve Bank of Australia will release the latest Monetary Policy Statement, which will reveal the thoughts of all the members on the decision making committee. The sentiment of this statement will be key because if there are several members of the committee potentially concerned, the prospect of the rate cut becomes significant.
When you consider the Global markets and how interest rates are moving, many Central Banks are suggesting that 2019 will bring rate hikes with many following suit with the US, who has raised several times in the last year. Whilst some may not expect to hike, there is very few who are forecasting a cut.
If the RBA deliver an interest cut, the GBP/AUD rate could swiftly find itself trading back near 1.90 in my opinion, if not higher.
The Australian dollar has been on something of a roller-coaster over the last few years with 10 cent swings becoming common place.
The reason for much of this volatility has been the returns investors could receive by holding their funds in Australian dollars. Before the US raised their interest rates by 3% last year, Australia were offering some of the best levels in the developed markets.
If the returns investors receive through interest were to fall, then the attraction would diminish, causing the value of the Aussie to fall. Should there be positive movements with Brexit strengthening sterling, coupled with AUD weakness then there really could be a major spike for the GBP/AUD. Arguably if you’re looking to sell Australian dollars and you’re holding on for a better rate, the levels at the moment may soon be what your target becomes.
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