GBP/AUD currently sits at the lowest levels for AUD buyers since September 2014. Brexit is taking it’s toll on the Pound. Bank of England (BOE) Governor, Mark Carney spoke yesterday during a stability report. He stated there is £150bn ready for quantitative easing (QE). QE is essentially pumping money into an economy in a an attempt to stimulate growth. He also said there is the likelihood of a rate cut from 0.5% to 0.25% which could take place as early as next week. If this does not occur, expect the rate drop to occur at the next monetary policy committee meeting in August.
This is already being factored into GBP/AUD, currently sat in the 1.73s. I think there is the potential for further a further drop. We currently have a hung parliament after the Australian General Election. Parties will have thirteen days for a government to be formed. Historically during times political uncertainty the currency in question will weaken. However, this goes to show how much Brexit has effected the Pound. The Aussie should be weakening, but it is continuing to strengthen against the Pound. Once a government comes into place I expect further movement in favour of AUD.
It is important to note that there is a strong possibility the Reserve Bank of Australia (RBA) will also cut interest rates. This week they have been held at 1.75%, but I feel this decision was only taken as there is no government in place. There could well be a cut next month. With the Aussie currently looking strong against the majority of major currency pairings I would say the RBA may take action in order to make Australia’s raw material exports more appealing.
Volatility is assured.
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