The Pound finally made some inroads against the AUD over the past 48 hours, with GBP/AUD hitting 1.6950 at today’s high.
The Pound has gained almost two cents, with those clients holding Sterling have BoE governor Mark Carney to thank for the recent improvement.
Carney surprised the markets by suggesting a rise in UK interest rates was not being discounted, despite comments he made last week which seemed to dampen expectation of a hike.
He even went as far as to suggest that it would be necessary, should UK business’s shrug off Brexit uncertainty and raise investment and wages. He stopped as far as giving a time-frame on any prospective rate hike and whilst his comments may be diluted over the coming days, the initial impact was certainly a positive one for the Pound.
Today’s move brought some much-needed respite to those clients holding Sterling, after watching its value decrease over recent weeks. A combination of the disastrous election results as far as market perception was concerned and the on-going uncertainty surrounding Brexit negotiations, has dragged the Pound’s value down investor’s risk appetite shrunk alongside the UK’s economic growth forecasts.
Despite today’s improvements, I would be wary about assuming the current trend is here to stay. With a wave of support growing for the Corbyn led Labour party and infighting amongst the Tories, further political unrest in likely and this in turn is likely to heap pressure on the UK economy and ultimately the Pound over the coming weeks.
UK Brexit negotiator David Davis remains unsurprisingly bullish but confirmed that a strong majority would have given him a better starting, as to which to enter into negotiations with the EU.
For those clients holding the AUD, I feel is likely to find some protection under 1.70 but with the current market unpredictability, any exposed positions could be hit hard by a change in market sentiment.
Being a commodity based currency the AUD relies heavily on global growth remaining strong and whilst the current climate is pushing investors towards the AUD and its higher yielding interest rates, any slowdown in its export sector will hit the Australian economy hard and the AUD will almost certainly suffer as a result.
A strong AUD relies heavily on the export of Australia’s vast supply of raw materials to China, so any clients looking to buy or sell AUD should have a strong interest in Australia’s monthly trade balance figures.
Whilst so much instability remains, those clients holding both currencies need to ask themselves whether they are prepared to risk further losses, in order to make any gains.
Personally, I feel that the pound will be restricted in terms of how far it can go and in my opinion, based on the current market uncertainty, the downside risks currently outweigh the upside gains.
For this reason, I would be looking to protect the current levels, rather than a gamble on any substantial up gain
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Our award inning rates can be accessed very easily over the phone and I can keep you posted with key market developments ahead of any prospective exchange you need to make.
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