Where Next for GBP/AUD Exchange Rates? (Matthew Vassallo)

Increase in Risk Appetite Helps Support the Australian Dollar

The AUD has had mixed fortunes of late and although the general trend remains negative, there have been some more positive signs of late. The most poignant of these was an improvement in the official unemployment rate and this helped boost the AUD’s value against GBP. Unfortunately this was countered somewhat by the latest Reserve Bank of Australia (RBA) minutes, which indicated that the central bank was still concerned about a number of different facets of the Australian economy, particularly the low inflation levels.

However, as regular readers will know the main driving factor behind much of the AUD’s demise over recent months has been the huge slowdown in China’s economy. China remains Australia’s largest trading partner due to their import of Australia’s vast supply of raw materials. The fact this has slowed to such an extent has put a huge strain on Australia’s mining sector, which has some the highest labour costs in the world. This in turn then puts strain on the Australian economy, which has to continue to subsidise these costs.

GBP/AUD rates have not moved as aggressively of late and the AUD has found some support around 2.15 on the exchange. Whilst I don’t expect a move back under 2.10 under current conditions, I feel the Pound will struggle to break back through 2.20 now that the RBA seems likely to keep interest rates on hold for the foreseeable future.

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