New Reserve Bank of Australia Governor Philip Lowe has a tough job on his hands

Since Britain’s vote to leave the EU Sterling has fell heavily against the Australian Dollar. Theresa May was a catalyst to Sterling’s drop with her announcement that Article 50 would be invoked before the end of March. The days of 2.20 on GBP/AUD are a distant memory and we now sit close to the mid 1.60s. Judging by the current situations on both sides of the globe a betting man would put his money on a further decline for the pound.

Further negative UK economic data is expected, with predictions given justification due to the uncertainty surrounding trade deals following the Brexit vote.

Looking at Australia, the strength of the Aussie is causing problems. Australia are heavily reliant on raw material export to the Chinese. If the Australian Dollar is to strong, the Chinese may look elsewhere for a cheaper alternative.

This leaves new Reserve Bank of Australia Governor, Philip Lowe with a real problem on his hands. His wish is to artificially weaken the currency in order to decrease the price of exports. The tried and tested method of doing so is through monetary policy, specifically a cut in interest rates.

The RBA chose to cut interest rates on 2nd August this year to 1.5%. It did not have the desired effect. The Aussie continues to stay strong. Rather than attempt to drop the value of the Aussie through further monetary policy changes it seems as though Lowe will “jawbone” to try and weaken the currency. “Jawboning” is where a National Bank representative attempts to talk down a currency’s value, it is not considered to be the most effective method and I do not have much faith in Mr Lowe’s success.

Short term it looks as though if you are an Aussie buyer it may be wise to bite the bullet on your trade. Thing could be set to get worse following the UKs timelines for exiting the EU. Call our trading floor on 01494 725 353 to discuss a currency transfer.


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