Will the Recent AUD Strength Continue? (Matthew Vassallo)

AUDGBP Heads for the Yearly Lows After UK Inflation

AUD sellers will be buoyed this week following 2 days of positive movement against the Pound. GBP/AUD rates have dipped to some of their lowest levels in the past 6 months and provided AUD sellers with some good news following months of negative downturns. The pair has dropped by over 2 cents during Tuesday’s trading and the key question now is whether this trend will continue.

Personally I feel that whilst this is certainly a positive for AUD sellers, the movement discussed has come about due to market negativity surrounding the UK economy and not because of a major confidence boost in the AUD. The markets were reacting to this morning’s UK inflation report hearings and Bank of England (BoE) governor Mark Carney’s address to MP’s on the Treasury Committee. During his address Carney confirmed that UK interest rates were likely to remain low for some time and couldn’t see them being raised until at least the middle of 2016. Personally I feel it will be longer than this until we see a rate hike and this news has once again dampened market expectation and caused the Pound to weaken.

With GBP/AUD rates now trading below 2.08 many clients will be questioning whenever this trend is likely to continue. Whilst I have no doubt the AUD will now find protection away from the lows we saw in the summer, I’m not convinced it has enough support to breach 2.05. Despite this week’s positive move the Australian economy is still struggling despite an improvement in unemployment. Inflation figures remain below the Reserve Bank of Australia’s (RBA) target and with growth forecasts hit by the on-going economic difficulties faced in China, the road to recovery remains a long one.

Therefore I would be very tempted to take advantage of the recent improvement and lock in any AUD positions around the current levels, rather than gamble of further market  improvement.

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