GBP/AUD rates saw a very sudden and unexpected turnaround last week following the revelation of deflation in the Australian economy.
Prior to this, buying Australian Dollar rates have been seeing a very gradual and medium-term decline since the beginning of the year.
The reasons why are rarely as visible to markets as they have been in this instance, which is why GBP/AUD has not seen a significant turnaround until now.
Politically the UK has made the Pound an unattractive prospect for months, with a looming Referendum continuing to make investors turn their nose up at a Pound which is likely to continue losing value in the run-up to June.
Economically the UK has also posted very underwhelming performance figures. Growth is down by a third compared to the final quarter of 2015, whilst Australia has been enjoying the benefits of a record tourist season, a stabilising China, and a rebound in the commodities market.
This sudden turnaround in GBP/AUD frankly, given the above disparity between the recent performance of the UK and Australian economies, does seem to be an overreaction from the marketplace. Particularly given that globally economies are having issues with deflation, it is almost a universal problem.
The likely reason for this market overreaction can be found in the announcement of Australia’s interest rate decision on Tuesday, which has markets nervous.
Mentions of cuts have been thrown around half-heartedly, but with this new announcement of deflation, financial markets may be concerned about intervention to protect the economy. Cuts normally result in the loss of value for a currency, which explains the rise on GBP/AUD buying rates last week.
I do not expect a cut to take place. This is something that Glenn Stevens (Reserve Bank of Australia Governor) has been discussing periodically for over a year. He didn’t deploy this at the height of the problems over in China which were causing much more serious concerns for the Australian economy in August last year or January at the beginning of this year, and this makes it unlikely he will revert to such extreme measures now.
Frankly, the drop in prices can be explained largely due to the dialling down of the tourist season. But even if Stevens was worried, his previous behaviour has shown he is unlikely to act on impulse, and will almost surely wait to the following meeting of the RBA in June before seriously considering any cuts.
With the above in mind, this recent rise on GBP/AUD exchange rates should be seen as a gift for Australian Dollar buyers. Particularly since rates were close to the 1.70’s just last week than the 1.90’s.
I strongly recommend that anyone with an Australian Dollar buying requirement should contact me on [email protected] over the weekend whilst markets are closed to discuss a strategy for your transfer in order to maximise your Australian Dollar return.
Despite the lack of conviction for a cut, the opening of trading next will still present a nervous market with plenty of volatility, and therefore opportunity.
There are a number of options available through a currency exchange specialist which allow you to secure any peaks which occur immediately, to avoid missing out on these potential opportunities whilst you are otherwise engaged.
I have never had an issue beating the rates of exchange offered elsewhere, and a brief conversation about your options could save you thousands on your transfer.
Australian Dollar sellers can do the same, and I can how best to ride the expected movements in your favour to their peak within the time period you have to complete your transfer.