Positive Inflation strengthens the Australian Dollar. (Daniel Johnson)

Australian Dollar Forecast – Unemployment Weighs on Sentiment

Sterling Forecast

During the early hours Australian Consumer Price Index (CPI) data was released. CPI is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. It is essentially a measure of inflation and is a key barometer as to the health of an economy.

Both year on year and quarter on quarter figures were positive and the Australian Dollar gained bvalue against he majority of major currencies as a result. GBP/AUD dropped as low as 1.57, the lowest levels in three years. The Aussie’s rise in value is not necessarily all positive for the Australian economy as Australia’s income is based largely on exports to China. If these exports become too expensive then the Chinese may consider looking elsewhere for cheaper alternatives.

This leaves the Reserve Bank of Australia with an interesting conundrum, as usually a drop in interest rates would be implemented in order to weaken the currency. The last time this occurred earlier in the year however it did not have the desired effect so it will be a difficult decision for the RBA at the next interest rate decision meeting due on 1st November. If there is a cut by the RBA it may create an opportunity for AUD buyers, although I am not confident this will occur.

Mark Carney the Head of the Bank of England spoke yesterday and he had a very dovish tone. This was coupled with his announcement that he may not continue in his role past his current contract which is due to end in 2018. Personally, I think he is an excellent governor and we could do a lot worse. He is a man who is willing to make tough decisions and puts the UK economy first. His hint at leaving does not bode well for the pound.

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