GBP/AUD rates have levelled out somewhat following last week’s decision by the Bank of England (BoE) to keep UK interest rates on hold at 0.5%. This, alongside the political stability bough about by Theresa May’s appointment as Prime Minister, has helped Sterling gain some much needed market support. GBP/AUD rate shave spiked back above 1.75 at today’s high and whilst the Pound clearly remains under pressure, at least last week’s developments have helped to curb any further aggressive loses in the short-term.
Whilst I do not anticipate a sustainable recovery above 1.80 for the Pound under current market conditions, I would be extremely tempted to secure any short to medium-term AUD sell positons, due to the huge improvement we’ve seen over the past few months. GBP/AUD has always been a relatively volatile currency pair and recent events, both politically and economically, have only enhanced this trend. The Pound has suffered due to the Brexit result and this uncertainty is likely to hang over the UK economy for many months if not years to come and investors risk appetite has diminished as a result.
Despite the current downturn in the UK economy I am still wary about putting too much faith in the AUD, which is so reliant on Australia’s economic wellbeing and trade links to China, that any negative domino effect can knock it of course extremely quickly. The AUD remains fragile and with so much uncertainty and the ‘cloak & dagger’ scenario that surrounds the Chinese economy, I wouldn’t be relying on the current trend continuing indefinitely.
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