RBA’s Stance Likely to Handicap the AUD (Matthew Vassallo)

AUD GBP Lower Ahead of PMI Data for the UK Economy

The AUD has found life tough going of late and with the Reserve Bank of Australia (RBA) actively looking to drive down the price of the AUD, as they feel it is currently overvalued and having a negative impact on Australia’s export industry. They recently cut interest rates and have left themselves open to a further cut should it be required and this has led to a complete lack of confidence by investors in the Australian economy.

GBP/AUD rates have risen by over 3 cents during Friday’s trading, providing some of the best buying opportunities we’ve seen this year. It was announced overnight that RBA governor Glenn Stevens will be replaced by Deputy Governor Philip Lowe and this changing of the guard, coupled with poor data from China and the RBA’s general stance has caused the AUD to weaken, with investors looking at the UK as the ‘safer bet’ under current market conditions.

Despite this positive move I would be wary about putting too much confidence in the Pound, which is still likely to be handicapped by the ongoing uncertainty surrounding the EU referendum in June. I do not expect any sustained support under current market conditions. We need to consider the reality and that is investors have little or no risk appetitive due to the on-going negativity surrounding the UK recovery. The Bank of England’s (BoE) recent stance has been to talk down facets of our economy and this has been reinforced by a run of very inconsistent economic data. With growth forecasts likely to remain weak for the remainder of 2016, I do not expect to see GBP/AUD rates to hit the dizzy heights of last year, when the pair was trading comfortably over 2.20  for an extended period of time.

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