Interest Rate Decision could cause fluctuation on GBP/AUD (Daniel Johnson)

Will Sterling Weakness Continue to Help the AUD to GBP Rate Improve?

RBA Interest Rate Decision

During the early hours of Tuesday we saw the Reserve Bank of Australia (RBA) interest rate decision. There has been a dilemma for the RBA of late as the strong value of the Aussie could put off China buying there raw materials from Australia. The normal method to bring down the value of a currency would be to cut interest rates.  The RBA cut rates earlier this year and it did not have the desired effect. It only weakened the Aussie slightly and it soon came back to the pre-cut levels.

UK Interest Rate Decision

Tomorrow at 13.00 we will have the UK interest rate decision and due to the uncertainty surrounding Brexit there is the possibility of a rate cut in an attempt to stimulate growth. Personally, I think it would be a surprise to see a cut as the Bank of England (BOE) were criticised for their cut straight after Brexit, a cut to further record lows would be questionable and the pound would suffer. There is the argument that it would mean an increase in domestic goods purchases. However, we do rely heavily on food import from Europe and with the weak value of the pound produce is now far more expensive. It will be the consumers who take the hit. Expect inflation to rise quickly particularly on consumables.

How will the US election effect Australian Dollar value?

The US is considered a safe haven for investors, but with Trump now moving closer to Hilary in the polls that safe haven will be brought into question. Trump has some radical policies, most worryingly his plan to curb trade with China which would would wipe trillions off both country’s GDP.  His stance on immigration has already wiped 10% of the Mexican peso and he hasn’t even been elected. If Trump gets in it will be considered negative for the US and investors will flood to other avenues investment and with Australia’s current high interest rate it may well be the move of choice. If this is the case expect further Aussie strength.

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Daniel Johnson

Executive Dealer – Foreign Currencies Direct PLC