The RBA kept interest rates on hold overnight, despite signs of weaker inflation and retail sales. The concern now sits within Australias housing market, in which an interest rate cut could do more harm than good. The below table shows GBP/AUD exchange rate movements for the last 30 days.
Over the last month we have seen the Pound make gains vs the Australian Dollar of over 10 cents as the UK political stability appears to have returned combined with a slowdown in both China and the US. During April we have seen GBPAUD exchange rates move by over 10% which is the difference of £73,000 on a currency transfer of AUD $200,000 on a currency transfer of £100,000.
Typically if we see negative news in both the US and China this tends to weaken commodity based currencies including the Australian Dollar.
With US GDP data at a 3 year low this caused a big sell off for the Australian Dollar as is the US slows down this reduces the demand for natural resources and riskier currencies hence the recent weakening of the Australian Dollar.
Overnight the Reserve Bank of Australia has confirmed that it will be keeping interest rates on hold down under at 1.5%. One of the key concerns for the RBA is that of inflation. If the central bank was primarily concerned about keeping inflation between its target of 2%-3% then it should in theory have cut rate overnight. This is the ninth month in a row that the bank have kept rates on hold.
There is dispute over whether to cut rates or keep them on hold as inflation has continued to remain at the lower end of the scale and a lack of a arte cut will do little to boost inflation levels. Unemployment is creeping up and with Retail Sales also having fallen in recent months there is clearly evidence to support an interest rate cut. However, the RBA are also caught up in the problem of a booming housing market in both Sydney and Melbourne and a rate cut would simply exacerbate this problem. Indeed, house prices in Sydney alone have double sine 2009.
On the other hand although an interest rate hike would sort out the problem of house prices this could also cause a problem for the Australian economy.
Later on this morning the Australian Budget is published so keep your eyes on the markets at 1030am for any surprise that could cause volatility for GBP/AUD exchange rates.
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