Why the Australian dollar is now likely to make further gains!

Pound Pushes Higher Against the Australian Dollar on Recent Economic Divergence

The Australian dollar is likely to strengthen further in the future as the trends of the last few months continue. I will outline why I feel the AUD to GBP rate is likely to improve, ie if you need to buy Australian dollars it would appear moving sooner rather than later will turn out to be the best course of action.

US Interest Rates – The USD is the world’s leading currency (for now) and it has strengthened in the last year as investors believe there is a very strong chance that the US will raise their base interest rate. This caused the USD to strengthen weakening other currencies like the AUD. Now that the US is highly unlikely to be raising interest rates anytime soon, the USD has weakened and funds have been reinvested in AUD because it is a higher yielding currency.

China – The Chinese economy has been slowing to levels unacceptable to Beijing. Consequently the Aussie has weakened as investor fears rise over demand for Australian raw materials. However Beijing have already shown they will not accept a stalling economy and have intervened in the currency markets and cut their interest rate to boost growth. I firmly believe further stimulus will be used which will help boost the Chinese economy and strengthen the Australian economy and their currency.

GBP Weakness – The pound has weakened lately as investors fears over the weakness in the UK economy increase. The prospect of just ‘when’ the UK will raise interest rates has been diminishing for the latter half of this year and with yet more global uncertainty it seems likely sterling will struggle to make any major gains. UK GDP (Gross Domestic Product) data showed a slowdown, I think there will be worse news to come for the pound.

If you need to buy Australian dollars you are currently looking at a very good historical level that could easily fall further for the reasons above. We are currently in the midst of a ‘new trend’ on the rate with GBPAUD having peaked some weeks ago. Hoping that it will make a sudden return is unlikely… For more information on the market and your options to buy Australian dollars with sterling please speak to me Jonathan on jmw@currencies.co.uk