Reserve Bank of Australia keep interest rates on hold, but for how long?

Last week we saw Australia’s on Reserve Bank keep interest rates on hold at 1.5%, despite easing rates twice throughout 2016. Inflation is a big worry for Australia as it remained subdued in 2016. The Australian dollar has gone from strength to strength this year, with lows of 1.59 versus the Pound. This time a year ago, the rate for buying Australian Dollars was well above 2 to the pound. Currently, the Pound is under pressure as the Supreme Court case regarding the Governments appeal over the decision for parliament to vote on article 50 is decided.

US interest rate decision

Wednesday is likely to provide an opportunity for Australian dollar buyers. The Australian dollar is a favourite amongst investors due to its high lending rate of 1.5%, as previously discussed. However, the AUD is viewed as a riskier currency due to the fact that it is commodity based, which means that I relies heavily on its exports of raw materials. As a more reliable economy such as the United States increases its interest rates, investors will move funds from the AUD and more than likely place them in the US Dollar.

Personally, I think that clients looking at selling Australian Dollars may want to look at doing things now before get worse. The US and Americas trade war has been boiling since Donald Trump has made it into power, and as China is Australia’s largest trade partner and relies heavily on its exports to China, I personally believe that this could spell trouble in the form of Australian Dollar weakness in the coming months.

With potential movements for GBP/AUD if the FED change interest rates on Wednesday, clients looking to buy or sell the Australian Dollar may benefit from getting in touch with their assigned broker on 01494 725 353. Alternatively, if you have not traded with us before but have questions around this report, you can email me at lme@currencies.co.uk.

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