The AUD has had another volatile trading week, as the economic problems in China continue to mount. The well documents crash in the Chinese stock market has triggered a state of global panic and due to the trade ties between Australia and China, this has shaken the Australian economy and ultimately dragged down the value of the AUD.
This has caused the AUD to dip against all the major currency pairs but in particular against Sterling, with the pair reaching 2.21 on the exchange earlier this week. These were some of the best buying opportunities clients who were holding GBP had seen in the past 8 years, although the opportunity was short live with the AUD finding some support over the past 12 hours.
The reason for this improvement can be attributed to the strong construction data released overnight, which came in far better than anticipated. This helped to push the AUD’s value up, with GBP/AUD rates moving back below 2.16 at today’s low. Personally I see this as a short-term opportunity which has presented itself and if feasible, should be taken advantage of. I just cannot see any sustained improvement under current market conditions and with the economic problems in China likely to continue over the coming months, we could find the AUD continues to come under pressure during that period.
It’s been a quiet week for data releases, so all eyes will switch to next week’s Reserve Bank of Australia (RBA) interest rate decision. RBA governor Glenn Stevens will be pleased to see the recent devaluation of the AUD as it will help to facilitate an improvement in exports but may be concerned with the situation in China. He has already stated that the RBA will cut interest rates again if necessary, so it will be interesting to see what stance the central bank take next week.
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