GBPAUD will drop lower before it rises….

If tracking the GBPAUD exchange rate it has been a rather rocky year with a drop of 25 cents since January when the rate stood proudly at almost 2.10. At that time a drop below 2 seemed unlikely given most analysts were predicting an interest rate cut by the Reserve Bank of Australia in February or March. Well the worst fears on the Aussie itself have failed to materialise resulting in the great spike we have seen in this space of time. combine the AUD’s attractiveness with the near panic on sterling and we can see why the pairing has moved over 10% in the last 90 days. The big question of course is what is around the corner and I have no hesitation in predicting the rate will deteriorate lower perhaps to trade in the 1.70’s and were we to see a Brexit or in the weeks and days before Brexit potentially the 1.60’s.

Such a mammoth fall can only be explained by the mammoth political uncertainty Brexit brings to financial markets and sterling will struggle to hold its head above water in this environment. GBPAUD buyers should be seriously planning an exit strategy as we know from previous politically uncertain events the pound will struggle to make gains with so much uncertainty and negativity around.

Its not quite all doom and gloom

Of course it is never one sided on the currency markets and whilst I do believe the scenario above is the more likely we may well see some weakening of the Australian dollar should an interest rate cut become more likely again over there. Current forecasts put this at a 50% chance by August, this indicates to me that GBPAUD will have some way to fall before making a recovery later in the year depending on the outcome of the EU Referendum.

A Remain vote for the UK could see sterling spike much higher and if at that time (23rd June) the Australian economy is under pressure and an interest rate cut looming then we may well see rates in the higher 1.90’s and possibly over 2 again.

The best way to plan for such volatility is to carefully monitor events and examine all of your options. As specialist currency brokers writing this blog we offer a range of tools and options to help limit your exposure and manage your risk including:

Forward Contract – Don’t have all your full funds now? For a small deposit we can fix today’s rate for payment up to one year later. Perfect to help manage the cost of buying or selling Australian dollars in the future.

Limit Order – You choose a higher rate to buy at which we will automatically buy at once hit. eg 1.90…

Stop / Loss Order – You choose a lower level you do not want to get worse than and we buy automatically once hit preventing further losses eg 1.80…

This blog is designed to offer insight and information on the market to help you with any transactions you are considering. If you wish to learn more the author Jonathan Watson can be reached directly via email on jmw@currencies.co.uk to offer direct information to help you get a better deal.