Fiscal Cliff Issues cause Australian Dollar Weakness

AUD GBP Lower After Dismal Employment Report

GBPAUD exchange rates have increased to above 1.54 today as the currency markets watch the next move in America regarding the US fiscal cliff. Obama has been undecided about what direction to take and confirm what tax thresholds will be affected in order to strengthen the economy. The instability that has occurred has seen investors move funds out of riskier currencies including the Australian Dollar which is why Sterling has hit the highest level against the Australian Dollar since early November.

Interestingly enough the World Bank has raised the growth forecast for China and over the last few years the Australian Dollar’s strength has been heavily influenced by what has happened in China. Indeed, the theory is if China grows then we see AUD strength. Therefore, the announcement of the increased growth forecast seems to have been overlooked by the market in favour of focusing on what’s happening in America. The previous projection was 8.1% in 2013 and now the forecast is 8.4%. Various stimulus measures put in place by China including two interest rate cuts since June and the approval of infrastructure projects to the value of more than US$150bn has been seen as a positive move by the Chinese.

Another reason for the weakening of the Aussie Dollar is that trading seems to be slowing for Australia’s commodity market. Growth has slowed in Australia to 3.1% year on year from 4.1% in Q2. With the recent slowdown for Australia could this be the beginning of Sterling’s fightback against the AUD?

Later today I think we’ll see GBPAUD rates break through 1.55. For information about how to save money when exchanging currency feel free to email me directly Tom Holian [email protected]