Yesterday, GBP/AUD exchange rates took a hit following Theresa May’s announcement of Article 50 over the weekend, current rates are now trending at 3-year lows. This presents fantastic opportunities for clients holding AUD which I don’t personally believe will be available for long. In the early hours of this morning the new RBA Governor Philip Lowe kept interest rates on hold, a non-event which is not surprising given his recent appointment. But looking further afield are their reasons to be concerned about the current state of the Australian economy?
Last September, Australia celebrated 25 years of uninterrupted economic growth, the economy managed to avoid the 2008 recession due in most part to a strong Chinese economy at the time.
With Australia’s heavy reliance on exports to the nation, problems in China usually spells AUD weakness as seen in 2015.
China is showing signs once again of economic slowdown, its debt is currently 237% of GDP (compared with the UK’s 89%), and more worryingly imports into the country fell 12.5% in July.
The FED have kept interest rates on hold since last December and growing pressure is building on the FED to act on their promise. The US economy is showing signs of strength and FED Chairlady Janet Yellen has stated that the ‘case for a FED hike has strengthened’.
Although it remains unlikely that one will materialise ahead of the US elections we could see another FED interest rate hike before the end of 2016.
This could have implications for AUD as investors look to move money into the US Dollar with less risk potentials and slightly higher returns following the potential rate hike.
Of little economic data released this week for AUD, paying attention to Thursday’s exports could provide further clues as to how well the Chinese economy is performing.
AUD sellers may want to get in touch with us on 01494 725 353. Further AUD weakness is forecasted which could impact your selling requirements.
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