Is the Australian Dollar Overvalued?

AUDGBP Strengthens Against but AUD Lower Against USD and EUR

As we approach the end of the trading week we have seen Sterling claw back some of its losses against the Australian Dollar over the last few weeks. With problems in Europe and a recession announced earlier this week investors have sold off the Aussie and moved their funds back to safer haven including Sterling and the US Dollar. As the mining industry continues to boom it is difficult to see this ending particularly with the new Chinese PM who will likely continue China’s recent investment in Australia. As their own population continues to grow it is likely that Chinese demand for raw materials will stay strong. The problem for Australia though is that whilst demand is strong and the mining industry grows this is having a detrimental affect on the wider economy in the country. With Australian Dollar exchange rates so high against both Pound and US Dollar the spiraling costs of living down under may mean that the Reserve Bank of Australia may have to intervene in order to weaken the Aussie.

Generally speaking the Australian banks are the envy of other western economies as their balance sheets are a lot stronger and they avoided the debt levels that occurred across Europe and the US during the last 5 years. It could be argued that Australia has been the main benefactor of a weak global economy and with interest rates well above those found in UK, Europe, US & Japan we could see the Aussie remain strong for quite some time. My personal feeling is that we’ll see GBPAUD exchange rates improve next week as the RBA minutes are published on Tuesday and any hints of discussion about cutting interest rates could provide Sterling with some strength.

For up to date exchange rates and how to save money on foreign currency transfers feel free to email me directly Tom Holian teh@currencies.co.uk