The Australian dollar has continued to take sharp losses since the beginning of the week when the Reserve Bank of Australia (RBA) completely surprised the markets and cut interest rates from 2% to 1.75%. I had personally been expecting a more gradual approach and so it is no surprise we have seen the kind of market reaction we have seen which has been very dollar negative. This morning has seen the RBA monetary policy statement which has made clear that further interest rate cuts may be needed if growth does not improve. This is a bold move and has already resulted in a major market reaction with the dollar weakening by over 1.25% against the pound this morning alone.
From a sterling perspective the pound has made excellent gains against the Australian dollar over the last week creating some much better opportunities to buy Australian dollars and there is likely to be some more room in this rally.
I have previously commented that the RBA had been concerned with the strength of the Aussie over the last couple of months. However I don’t think anyone realised perhaps how concerned the central bank really was. This is important as it gives us a much greater idea of how far the RBA are prepared to go to keep the Aussie weaker and hence more competitive. My feeling is that the Australian dollar should now have further to fall. The RBA does also have considerable more room to lower interest rates further if it deems necessary. This may now be the last cut for some time but if the dollar does rally again to anywhere near those recent highs then more action will probably be seen. For the moment the markets have been put firmly back into touch and a move to 2 dollars for GBP AUD should be within sight. For anyone selling Australian dollars with a fairly pressing requirement then it may be wise to consider taking a rate that is well below $2 as it is now. The recent action from the RBA should not be taken lightly and for me is a very clear signal they want the dollar weak!
Another consideration is of course the UK referendum on EU membership. The pound is subdued across most major currencies and there will inevitably be some key market movements in both directions in the coming weeks as one would expect with a topic that is as monumental as Brexit.
If you have an upcoming GBP or AUD currency requirement either buying or selling and would like to be kept up to date with key market movements, or simply wish to compare our award winning exchange rates then please feel free to contact me on 0044 1494 787 478 and ask one of the team for James. Alternatively you can email me directly at [email protected]