Rates continue to favour AUD Buyers (Joshua Privett)

Australian Dollar to Pound Forecast: Risk Sensitive AUD Likely to Remain Under Pressure

Recently we have had one of the few glimpses into the state of the Chinese economy allowed to Western economies. The soft data was troubling. While the Chinese economy is still growing at a staggering 7% per year, something European economies can largely only dream of, this is the first significant fall away from their standard 10% growth rate for many years. China weathered the storm well during the recession, but now the slow-down is evident ant telling. Loans were down, as well as other indicators of economic stagnation, that have lead to further Australian Dollar weakness.

China’s rapid growth and huge investment in infrastructure have driven demand for materials which fueled Australia’s mining boom. Poor data coming out of China has a substantial affect on the Australian dollar as a result, as poor Chinese demand will weaken their exports. The resulting job losses and lower profits weaken confidence in the Australian economy, and therefore the value of the Dollar.

Yet the rates are still off the near 2.0 figures we were enjoying a few months ago. The general election is the main issue. Sterling weakness is matching the Australian Dollar weakness hit for hit, as the potential for a hung parliament in the UK seems all but certain.

Therefore, there are two things to consider. On Tuesday the RBA will release the minutes of their latest meeting. Last time they didnt think that a change in the interest rate was going to make a positive impact on the Australian economy. Lowering the rate lowers returns, so the AUD value was bolstered by this confident news in the Australian Banking sector. It is likely we will get a repeat, and this is the last bit of significant news for the Australian economy for the next few weeks.

The second is that in the last election, weakness in Sterling was most prominent in the last two weeks going into the election, which we are on the cusp of entering. As such we have the potential for a bolstered Dollar and weakened Sterling occurring simultaneously.

If you have an Australian Dollar purchase coming up soon, or indeed over the next few months (as the aftermath of elections still hold down the value of a currency) I would recommend emailing me over the weekend on jjp@currencies.co.uk to discuss your options to peg the currently favourable exchange rates, before they snap back against your favour.