This update examines factors that could affect GBPAUD exchange rates this week, such as the Bank of England's interest rate decision today.
Earlier this week as expected the Reserve Bank of Australia cut interest rates by 0.25% to 1.5% in a bid to stimulate a stagnant Australian economy. However, since the cut the Australian dollar has barely made any losses against sterling and I put this down to two reasons. Firstly, the market was expecting the cut, therefore the market had already 'priced in' the decision. Secondly the UK economy is beginning to show cracks due to the Brexit vote and therefore the Bank of England are likely to cut interest rates today.
Since the interest rate decision Glenn Stevens has stated falling inflation contributed to the interest rate cut and the Reserve Bank of Australia wanted a lower interest rate which would entice lending from the banks and spending from the public. This should therefore stop inflation from falling.
Friday morning the RBA release their actual Monetary policy statement. This should give further information to why the RBA made the cut and at the same time give future direction to Monetary Policy. I expect the Governor to try and stay positive whilst stating that the RBA have the tools in place and will cut rates further if they believe it would benefit the Australian economy. Consequently, I expect to see minor Australian dollar weakness Friday.
If you are buying Australian Dollars in the near future I would recommend purchasing before the UKs interest rate decision today as I am expecting a drop in rates. If you are selling Australian dollars in the near future I would wait until the UKs interest rate decision is over and trade shortly after. Furthermore, I certainly would take Fridays Monetary Policy statement out of the picture.
I would strongly recommend any client buying or selling Australian dollars to speak with your account manager as soon as possible to devise a strategy that works for you.
Thank you for reading my Aussie Dollar currency report, if you have any questions about the Bank of Englands decision today – you can contact me at 01494 725 353.
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