Last week the Australian dollar fell to a 2-year low against the pound and a 2 and a half-year low against the US dollar. It has been heavily documented in the media that rising interest rates in the US have been the key driver for the Australian dollar's demise, and the Federal Reserve still plan to hike interest rates further in the next 12 months. Carry traders, which borrow in low interest rate jurisdictions and invest in high interest rate jurisdictions are quite simply choosing the US dollar over the Australian dollar. Traders are also selling off their Australian dollar positions, which is in turn devaluing the Aussie and making the currency cheaper to buy.

Currency Pair% Change in 1 monthDifference on £200,000
GBPAUD3.99%AUD $8,580

The other significant problem for the Australian dollar is the growing economic war between the US and China. This weekend US Vice President Mike Pence outlined that the trade war is more than ‘tit for tat on tariffs’. A report published by Bloomberg this weekend states that China are being investigated for hacking American technology, by sneaking compromised chips into companies such as Apple. If this is true, it will surely infuriate the President of the US and escalate the situation. The problem for the Australian dollar is that Australia relies heavily on China for trade but rely on the US for Defence.

Australian Dollar Strength after RBA Meeting

Is now the time to sell Australian dollars and buy pounds?

At the moment it only looks like its going one way for the Australian dollar, and clients selling AUD to buy another currency should seriously consider their position. For clients converting Australian dollars to pounds, the developments in regards to Brexit last week alongside the devaluing Australian dollar have pushed exchange rates lower to 0.5375. If it is the case that a deal is agreed in the upcoming months in regards to Brexit, I expect AUDGBP to fall back towards the level we saw pre-Brexit. At present Australian dollar sellers still have an opportunity. Selling 500,000 Australian dollars into pounds now compared to pre-Brexit still generates an additional £14,800.

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