Yesterday the Australian Dollar continued its assault on the currency market gaining over 0.5% against Sterling bringing levels close to 1.46. It has also seen strong moves against the Euro currently sitting at 1.2350. Earlier this week expectation was for the Reserve Bank of Australia (RBA) to cut interest rates and the decision to keep rates on hold surprised the market a little and the AUD gained subsequently. I personally feel the RBA will initiate a round of cuts in the coming months, if anything to ease the pressure on the countries exports. Regular readers will be aware that should a country or zone cut rates this would tend to decrease the value of that respective currency as it makes it less attractive as an investment opportunity and therefore demand falls and so to the price. Should this scenario occur we could see levels for the AUD weaken, the problem is this could be months down the line.
Anyone with a more immediate requirement, particularly anyone with an interest in AUD/GBP and AUD/EUR then today’s interest meetings from the Bank of England (BofE) and European Central Bank (ECB) will be key to short term moves. It is expected the BofE will keep rates on hold at 0.5% and an outside chance the ECB will cut rates (more likely to hold in my opinion) however certainly from the pounds point of view the important aspect will be the decision with regards to quantitative easing. Analysts have priced in a chance of a £50bn injection from the BofE and this has been reflected in the recent losses seen for the pound – should we see an extension expect further losses, a hold however and we may see a spike for the pound.
For those with an interest in the Euro, I expect the ECB to keep rates on hold however the post decision conference from Mario Draghi (head of the ECB) will be interesting and give insight to future directions for AUD/EUR. To me the key factor for this pairing is still the ongoing Greece debacle, should an agreement be reached (I personally think it will) I would expect a surge to the AUD as investors confidence increases and demand for the higher return offered by the Aussie become sought after.
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