There has been a growing market expectation that the Reserve Bank of Australia (RBA) would be looking to cut their base interest rate at the upcoming meeting next week. The Australian dollar has had a unstable month losing around 2% of its value in the middle of May as the Australian election approached on the 18th, only for it regain many of the losses following the surprise Liberal victory in those elections.
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With the market having now digested the political news and no longer so fearful of the spending plans being projected by the failed Labour Party campaign, investors have bought back into the currency. It will be interesting to see if this change in the political situation will have influenced the RBA at all, I still feel the next move will have to be a cut sooner or later owing to some of the more global pressures on the Australian economy, like the trade wars.
The outlook on raising or keeping rates on on hold is still mixed and with there being an unclear expectation of what lies ahead next, we might expect a volatile session on the currency next week.
Recent improvements in the Aussie, and the weakness of sterling on Brexit and the European elections results, have seen the GBP/AUD level reach this milestone. This was almost unthinkable just a few weeks ago with the Aussie predicted to lose ground with many expecting the interbank rate to hit 1.90 before 1.80. Levels are 1.8219 and 1.80 cannot be ruled out.
China is also a big factor on the Australian dollar with the market fearful over the impact the trade wars will be having on the Chinese economy. With the trade wars looking like they will only deteriorate in the longer term, I foresee the more fundamental factors driving the weakness in the Aussie to remain.
A further reason for concern on the Aussie is that a lower interest rate down under will only make it likely to lose further ground to the US dollar as it has a higher interest rate. A slowing global economy will also put pressure on the Australian economy as it is used as a bellwether of sentiments on global trade, owing to its high exports of commodities like Iron Ore and Aluminium.
Despite the potential for further weakness on the Australian dollar, it doesn’t appear like sterling will be in too much of a position to capitalise anytime soon owing to the political and economic pressure for the UK.
Two key drivers on this pair are Global Trade Wars and Brexit, nether of which are any closer to being solved and seem unlikely to be resolved soon. Therefore, if you have a GBP/AUD transfer and wish to learn more, please speak to our team to be kept up to date and discuss relevant strategy for your exchange.
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