Sterling has performed extremely well against the AUD of late, with rates hitting a fresh 6 year high. With the Pound’s positive momentum continuing above 2, the question now is will this trend continue or is the AUD likely to find some market support at last?
Firstly it is worth looking into why the AUD has lost so much value against GBP in a relatively short space of time. Due to Australia’s reliance on the export of its raw materials, any fall off in this sector inevitably hurts Australia’s economic productivity and ultimately the AUD. With a slowdown in China’s economy and a concern over a major drop in the Chinese stick markets, confidence is low and this is certainly hurting the AUD.
We also need to consider the Reserve Bank of Australia’s (RBA) stance on the matter. They feel the AUD is still too strong, so will not be overly concerned by this drop. If Australia’s exports become cheaper for their trade partners, it is likely to boost their economy as this sector will become more affluent.
Finally we need to consider the global market and whilst the uncertainty around Greece remains, investors are less likely to put their funds into riskier currencies such as the AUD. They will move to safe haven’s such as USD and this again is likely to cause the AUD to weaken.
These scenarios are not particularly positive in terms of a major improvement but even today we have seen some support for the AUD, which may have come about due to rumours that Greece and its creditors are still pushing for a deal to be put in place. If this scenario does occur it is likely to bring some initial respite for the AUD.
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