Interest Rate cuts are likely in both the UK and Australia soon, but which will have the biggest effect? (Joseph Wright)

AUD to GBP Higher Ahead of UK Inflation Data

Next week on the 4th of August the Monetary Policy Committee will make their decision as to whether to cut interest rates or keep them on hold.

This is quite a key date as Mark Carney has alluded to an interest rate cut as well as potential for further Quantitative Easing, and he did this in the aftermath of the Brexit vote. The MPC has had one opportunity already to cut the rate but opted not to, with the Pound spiking upward when that decision was announced.

Next week I am expecting a cut of 0.25% down to the 0.25% level, and this would be the first amendment since May of 2009. There’s a chance the GBP/AUD will drop in the event of this cut but not dramatically as markets are expecting it and some might argue that it’s already been priced into GBP exchange rates.

There is also pressure on the Reserve Bank of Australia to make a decision as to whether they will cut Interest Rates down to record levels in the short term future. A fall in the demand for credit down in Australia has kept their inflation outlook subdued, and I wouldn’t be surprised to see an interest rate cut for this reason.

I’m not expecting the rate cut in August but it is worth noting that the last time Australia cut the rate down to it’s current level of 1.75%, the Pound gained around 10 cents vs the AUD, and I think we could see another similar move so overall I think the reaction to an Australian interest rate cut will be greater, so it may be an idea for Aussie Dollar sellers to take advantage of the current near 3 year high levels sooner as opposed to later.

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