Following the announcement that Moody’s the credit rating agency has downgraded France earlier in the week, global markets and confidence have taken a hit leading to a potential opportunity for anyone buying the Australian dollar. This morning may also prove important for short term investor confidence as EU leaders meet in Brussels to discuss the long term EU budget and how to reduce their long term spending plans. No doubt the meeting will see a varied difference in opinion and David Cameron has been open in stating he will veto any plans that may directly hinder the UK. For me it is unlikely a deal will be agreed and this is likely to keep investors on the edge of their seats – as a result I would not be surprised to see GBP/AUD head towards 1.55.
Longer term the fundamentals behind the Australian economy certainly seem far more positive than the UK, however their is a real chance of future interest rate cuts from the Reserve Bank of Australia and this could keep further pressure on the dollar. However the UK is likely to see further Quantitative Easing in the New Year and this should keep any strong gains against the AUD to a minimum and I would expect rates to remain range bound between 1.53-55 for a little while.
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