Sterling Finished Week Well After Losing Ground

Increase in Risk Appetite Helps Support the Australian Dollar

The GBP/AUD rate jumped back up to the 1.75’s today after falling earlier in the week after poor manufacturing data for the UK. The Brexit effect so to speak continues to cause volatility in the currency markets causing sharp swings.

Sterling and the Australian Dollar are having rough patches at the moment with different factors taking effect. Domestically Australia has a regional housing market which is allowing certain areas to boom. This has been potentially added to with the recent interest rate cuts, making mortgages cheaper. If the Reserve Bank of Australia continue to have to cut rates then the problem could continue to spiral out of control. The Reserve Bank Governor Glenn Stevens did mention he was concerned parts of Australia are showing housing price decreases and that having a monetary policy to cover all regions will be tough.

From Sterling’s perspective there is general uncertainty and until there is more data available along with definitive answers regarding Article 50 it could continue. The recent good news from the Purchasing Managers Index which surveys executives was short lived and the earlier jump was removed. The real hard data rather than opinions brought the rate crashing down over 2 cents in the space of 48 hours.

Moving forwards I think Sterling could start to strengthen especially as we enter a nervous time for the Euro. There will be a Referendum in Italy a week before the US election so I would not be surprised to see investors decide to put their funds into Sterling. This in turn should help the GBP/AUD move back towards the 1.80 in my opinion.      

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