Why is the Aussie so stong against the pound? When will GBPAUD strengthen?

AUD GBP Soars on Aussie Trade, BoE Interest Rates

With the GBPAUD being comfortably under 1.50 for the month of January, there appears to be little to hope for in the short term for GBP sellers, AUD buyers. Signs that a Greek deal may be struck by the end of the week have encouraged a return to riskier assets, causing USD weakness and AUD strength.

I just cannot see any improvements for anyone buying Aussie dollars in the short term. The Australian economy is really benefitting from continued global demand for it’s exports and even though we keep hearing talk of a slowdown in China, the reality is China is cementing its status as one of the worlds leading economies. And right behind it is Australia! I remeber when clients told me they never expected the rates to break 1 GBP – 2 AUD. I remember them saying it would never break 1.80, then 1.60 and even 1.50. I still have some clients who are holding out for a return to those kinds of levels and whilst the rate did move above 1.60 last year briefly it will take some big events to change the course being tracked. So why is the Aussie so stong against the pound? When will it weaken?

Why is the Aussie so stong against the pound? When will it weaken?

Interest Rates – Central bank interest rates affect a currency much like a higher interest rate attracts savers to different types of accounts. The UK has had rates on hold at 0.5% since May 2009!  Historically the rate has been at around 4-5%, although in the 1970’s it went up to over 10%! Australia has 4.5% interest rates so it attracts more investment which makes the currency stronger. Simple. Interest rates are changed when the central bank feel it is necessary. Typcially low rates encourage growth by encouraging borrowing. This is exactly why the Bank of England have held rates so low for so long. Which brings me nicely to my next point…

Economic Outlooks – Australia has a wealth of natural resources (coal, minerals used in electronic components, foodstuffs) heavily in demand internationally, specifically China. Therefore as China expands it keeps Australia’s economy healthy. Australia also has a bouyant housing market (think the UK before the crash) and solid economic growth numbers – the Australian economy is predicted to grow by 3.3% in 2012. Conversely the UK has just posted negative growth of -0.2% for  Q4 2011. With (financial) services being the main export the UK is heavily reliant on imports and it’s global positioning compared to other countries is economically speaking reducing. You could argue it’s political influence too is diminishing. This all makes investors think why would I buy the pound.. and hey, the Aussie looks good!

Risk Appetite – Despite the solid numbers Australia is still percieved as a slightly ‘risky’ currency. It doesn’t have as solid a base as say the pound or the US dollar (in terms of supply) and is therefore susceptible to investors ‘risk appetite’. When investors want to take a bit more of  risk they go for riskier currencies to basically turn a profit. Australia with its higher interest rates makes a very good investment. However with global uncertainty (of late due to the Eurozone crisis) investors may pull out of riskier currencies and head for safer shores like the US dollar.

There are no real hard fast rules with currencies but these are without the doubt the major themes affecting your GBPAUD rates. I spent some time in Australia back in 2000 when the rate was 1 GBP – 2.5 AUD. Did I ever think it would hit 1.47 and I would be blogging to the world about the reasons? Probably not.. And for those reasons anyone who is holding out for major improvements on GBPAUD would do well to examine the fundamentals and start to look at damage limitation measures. Speak to me to find out all your options on [email protected]  

If you are selling AUD to buy sterling then you must have a sore head. Becasue you have probably been partying lately because you are so excited to see such great rates! If you need to sell Aussies for any currency feel free to get in touch too. I can help you return funds to the UK at a commercial rate much better than banks.

Whichever side of the fence you sit on I can assist you with the very best rates. I work for a specialist broker in the UK who helps clients all over the world get the very best from the currency markets. I can easily beat the bank rates and have never had trouble beating other brokers. If you would like to find out all the issues surrounding your trade and benefit from the assistance of a specialist currency broker please get in touch quoting ‘ADF’ at [email protected] or fill in the contact form with your details.

I look forward to hearing from you!