GBP/AUD, barring the South African Rand, has been the most volatile of Sterling’s currency pairings in the past week. Graphs of how GBP/AUD rates have moved in the past week alone resemble a very violent roller-coaster. With the US interest rate decision finally upon us tomorrow after months of waiting this shouldn’t be changing.
A combination of strong Australian employment figures and a disappointing performance for the UK economy in recent weeks is what caused GBP/AUD to initially fall down to 2.05 at its lowest. The sudden near-collapse in commodity prices then caused the Australian Dollar to weaken since the end of last week – which is why we find rates back in the high 2.09’s as I write this article.
Whilst the recent commodity price fall is not an example of a new trend (it was a knock-on effect of the fall in oil prices to 6 year lows which are already correcting back upwards) it seems like GBP/AUD exchange rates could be set for further improvements for Australian Dollar buyers tomorrow.
The reason for this is actually due to events in the US.
With the Federal Reserve set to make the US the first country in the Western world since the financial crisis to raise interest rates – and we have been seeing ripples on the financial markets since October when the first explicit hints were seen.
This has affected GBP/AUD exchange rates heavily in the past.
The Australian economy currently enjoys a base interest rate of 2.0% – relatively high compared to the UK and the US. At the time the US were making hints of a hike, Australia were hinting at potential cuts to their base interest rates. Such a proposition was enough for investors to sell off their Aussie Dollars in favour of the US Dollar, causing AUD to lose value on the entire currency market.
However, recently a rate cut for the Australian economy has been dismissed by RBA Governor Glenn Stevens due to positive growth in jobs and output, so the attraction to move into the US Dollar has dwindled. The US are still expected to raise rates tomorrow, however, any weakness on the Aussie will be muted – we may just see GBP/AUD rates migrating above 2.10/11 tomorrow.
The Australian Dollar enjoys strength during their summer months thanks to the guaranteed tourism boost (explaining the additional 70,000 jobs added to the economy last month than previously expected). Whatever appears tomorrow may be some of the last chances to buy Australian Dollars close to the multi-year highs we have enjoyed since August.
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