The slide on GBP/AUD continues and rates have now crept lower into 2.11.
The Dollar is continuing to attract investment with the Reserve Bank of Australia’s recent decision not to cut interest rates further and confident statements about the nation’s ability to ‘weather any storm’.
This is in sharp contrast to recent announcements about the UK’s future interest rate timeline which has recently produced a rather negative spin compared to the Dollar’s positive one.
Arguably the single largest determinant of a currency’s value since the financial crisis of 2007/8 has been their timeline for raising interest rates from these historic lows. Sterling has been gaining ground against most of its major counterparts since the start of this year, with regularly postings of strong data, this rate rise appeared to be just around the corner.
However, record low inflation has hit the UK and has become ingrained. Fears of lowered global demand following events in China are also causing hesitancy in raising rates alongside this, so now a rate hike isn’t expected until the back end of 2016.
The disparity between positive and negative news surrounding the interest rate saga between the two nations is why rates have corrected so sharply for GBP/AUD in recent weeks, and why this trend seems to be continuing unabated.
Tomorrow will likely see confirmation that this trend will follow-on for the rest of October when the interest rate decision for the UK economy is announced, as well as a statement about future financial policy. With no change in the current situation in the UK, it is more likely than not that further Sterling weakness will follow when no solid timeline for an interest rate hike in the near term is announced.
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