GBP/AUD the focus pairing for the week (Joshua Privett)

AUDGBP Tests 0.5600 Once More as BoE Cuts QE

GBP/AUD had a rollercoaster end to the week with external events having the largest sway on Australian Dollar value rather than internal looks into the Australian economy.

Those interested in the Australian Dollar have found that news coming out of China has been the largest determinant for AUD value since August this year and the events of ‘Black Monday’. However, the sudden announcement of a further interest rate cut in China fell on deaf ears with GBP/AUD remaining stubbornly in the low 2.1’s.

This is because the effects of China have become much more far reaching than originally perceived by markets.

Originally the simplistic logic was poor news in China means less demand for Australian exports and a weakening of the Australian economy must follow – causing the same effect on AUD value with GBP/AUD soaring to multi-year highs.

Now the world picture is less black and white. Much of the strength behind currencies such as Sterling and the US Dollar has been the expectations of hikes in their base interest rates. The persistently poor news coming out of China, however, is making the heads of the UK, US and most recently the EU ever more cautious.

Delays in the timeline for interest rate rises are now persistantly in the news, and as a result, much of the strength behind these Western currencies are evaporating. 

On Thursday, the head of the European Central Bank announced rates on deposit accounts may actually go down to 0%. This coincided with news that the Chinese would be introducing a rate cut – yet the Australian Dollar strengthened before the end of the week.

While the future of the Australian economy is questionable, their interest rates are still 2% compared to the UK’s 0.5%. Global uncertainty is making the Australian Dollar more attractive by association, after months of being one of the few currencies under a negative spotlight. The news on Europe on Thursday saw investors flooding to the Australian Dollar in the hope of better returns on their capital.

With the global picture becoming more complicated, AUD rates are unlikely to make the gains seen in August back up to the 2.20’s. A clearly negative trend has been established since then, and while rates do not move in a straight line, they have been below 2.10 and I would be surprised if this does not occur again next week.

I strongly suggest that anyone with a GBP/AUD requirement should contact me on [email protected] to discuss a strategy on how to maximise your Australian Dollar return. I can also offer a competitive quote on your transfer should you wish – I have never had a problem beating the rates offered elsewhere.

I must remind readers that these current rates of exchange can be pegged if you do not require your currency until next year. This avoids any expensive moves against your favour.