This GBP/AUD rate update examines factors that could affect AUD exchange rates this week and the possible impact of an interest cut by the RBA.
The Reserve Bank of Australia are forecast to cut interest rates in the early hours of tomorrow morning & with the RBA citing Inflation issues and wider concerns over the economy. The RBA has actually cut their base rate 11 times since 2011 but despite this Inflation is still lower than where it was in 2011! This just goes to highlight the often global concerns that weigh on central banks. In the case of Australia the high interest rate has actually been quite a hindrance to the economy.
With Australia exporting many natural resources it really wants a lower exchange rate to make its goods cheaper to buy from overseas. However because their interest rate has been so high compared to other economies globally the Australian dollar has been used by investors to hold because of the high interest rate offering greater returns. This has in turn made the currency stronger causing problems in the Australian economy. With most central banks globally cutting interest rates to close to zero the Australian currency still offers a great return at the 1.5% it will probably be tomorrow. The impact of these cuts might therefore be muted.
It will be very interesting to see just what the RBA states about its views moving forward in its Rates Statement following the decision. In all likelihood the conditions that have caused this cut will remain and the RBA might need to cut again.
Whilst cutting interest rates does serve to weaken the currency concerned unfortunately any clients hanging on long term to see the Australian dollar weaken dramatically might find themselves disappointed.
The effect of these Interest rate cuts can very easily be called into question and because the market is expecting it the moves might be limited. If I was selling the Pound to buy Australian dollars I might yes wait until after tonight’s decision but would probably be moving before Thursday’s Bank of England interest rate decision.
Thursday it is the turn of the UK to in all probability cut rates which could send the pound lower owing to the wide range of options at the Bank’s disposal. Until the full effects of the Brexit are known sterling seems likely to remain on the weaker side. Clients selling Australian dollars for Pounds are likely to remain in the driving seat and depending on the Bank of England’s response this Thursday GBPAUD could easily slip below 1.70 in the coming weeks.
For more information on future data releases that could affect your Australian Dollar exchange, call our currency dealers on 01494 725 353 or email me at email@example.com.
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