Will GBP/AUD Exchange Rates Hit 2? (Matthew Vassallo)

AUD GBP Higher as UK Inflation Dips Slightly

GBP/AUD rates received a welcome boost for those clients holding the Pound, following last week’s decision by the Reserve Bank of Australia (RBA) to cut interest rates again down to 1.75%, a new record low. This immediately alleviated pressure on Sterling and the Pound made a sharp rise through 1.95 on the exchange, a key resistance level on the pair.

Despite the AUD finding support around the current levels, this morning’s high was 1.9803, clients will now be hoping that this recent momentum carries Sterling through 2, a key benchmark for many. Considering the on-going economic problems facing the Chinese economy and the current stance by the Reserve Bank of Australia (RBA), which has been to actively look to devalue the AUD, there is a strong argument in favour of this.

However, we do need consider that the Bank of England (BoE) are equally concerned about the rising value of the Pound and this is evident in their comments over recent months. The UK trade deficit remains too wide and this will only be narrowed if trade with a flagging Eurozone is boosted, another element of the economy the Leave party will argue will be enhanced by an Out of Europe vote. Despite their being no direct correlation between the EU referendum and the Australian economy, the result will certainly affect GBP/AUD exchange rates. If the UK does leave the EU then expect the Pound to come under immediate pressure and the AUD is likely to benefit as a result.

I do feel that the Pound is now likely to hold its position above 1.90 but we will need to see another shift in market perception in order for GBP/AUD rates to move above 2.