GBP/AUD rates received a significant boost upwards yesterday, and for the first time in months this was not due to poor news coming out of China.
The Australian Dollar has long been an attractive currency for investor to hold as it is one of the few major currencies where the exchange rate attached to it is still above 1%. It’s actually still at 2%, and a full 4 times better than the UK at 0.5%, and 8 times better than the USA at 0.25%.
News that the US may be raising rates in December for the first time since the 2007/8 financial crisis caused some of the largest movements on the currency markets seen since ‘Black Monday’ in August. In the space of 10 minutes before and after the announcement, GBP/AUD climbed from 2.14 to 2.155.
The reason for this movement is that the attraction to hold AUD was muted by the expectation the USA will be raising rates themselves. Even though Australia still has higher interest rates, investors still wished to move funds into the US Dollar due to its global appeal as a safe-haven and accepted currency in numerous countries.
This sudden outflow of capital from the Australian Dollar to the US Dollar caused AUD weakness against its secondary pairings, and is why GBP/AUD suddenly spiked.
As this movement is nothing to do with changes in the actual performance of the UK or Australian economy, these are very unlikely to be a permanent feature on the currency markets.
Rates are already beginning to correct as AUD buyers scramble to buy at the current highs whilst the AUD is artificially undervalued. This is why rates on GBP/AUD have corrected by almost half a cent.
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