Rate hikes in 2017 but not until September

The Organisation for Economic Cooperation and Development released a report which indicates they believe the Reserve Bank of Australia will start to raise interest rates from 1.5% this year, but not until after September. The report all suggested that Treasurer Scott Morrison should consider loosening the budget restraints and consider infrastructure development. This is an area which currently Australia falls below other top performing nations around the world.

RBA could wait for the US FED

The strength of the Aussie against Sterling has been clear over the last few months, however moving forwards the US is likely to determine where AUD goes. Further rate hikes from the Federal Reserve would encourage more investors to move their funds from the riskier AUD.

The FOMC minutes suggested that more rate hikes are likely to be necessary to control inflation over the next year. If there was to be several rate hikes this year, I believe the GBP/AUD rate could move back towards the 1.90 level if not higher.

The last US interest rate hike in December caused a movement of nearly 4 cent and the rate was only moved by 0.25% to 0.75%. If there was to be multiple hikes and the rate moved back towards the 1.5% level, I believe it would cause a major movement on the Aussie Dollar.

Upcoming data tomorrow

The Australian trade data will be released tomorrow, with both Import and Export figures along with the trade balance data. The recent drop in AUD strength is unlikely to have filtered through to the stats just yet, however over the next months I would expect to see Australian exports getting stronger.

If you’re expecting to complete AUD transactions this year it would be prudent to speak to your broker. We’re able to set market rate alerts to notify you when the rate reaches a certain level.

Further US interest rate hikes could dampen appetite for AUD, presenting opportunities for buyers with Pound Sterling. If youd like to understand more about this, call our trading floor on 01494 725 353 or email me here.

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