Over the last two weeks the Australian dollar has been making inroads against the pound and GBPAUD exchange rates have plummeted 7 cents. To put this into monetary terms for any clients that are purchasing Australian dollars with pounds a 400,000 Australian dollar purchase will now cost just under an additional £10,000. However on the other hand for clients converting Australian dollars into pounds this is certainly something to smile about.
The latest minutes from the Reserve Bank of Australia gave no clear indication that the RBA will be raising interest rates anytime soon however the minutes were seen as bullish as it is clear that the next move will be to follow the trend of other central banks and raise the base rate.
UK inflation data disappointed last week which has relieved some of the pressure the Bank of England were receiving. The Bank of England set an inflation goal of 2% and at present even with the drop, inflation sits at 2.6%. Many economists were predicting if inflation rose above 3% we would get clear direction from the Governor of the Bank of England and an interest rate hike early next year was likely. However with inflation now falling the chances of a rate hike have diminished.
Since the UK public decided to vote out of the EU, the pound has lost approximately 15% against all of the major currencies. Brexit negotiations I believe will continue to weigh down on the pound for the foreseeable future as I don’t believe a deal will be struck anytime soon in regards to the divorce settlement or the rights of EU citizens living in the UK.
Therefore for Australian dollar buyers purchasing currency on the back of a positive move would be my strategy as I do not foresee any substantial gains being made over the upcoming months. Australian dollar sellers may wish to take advantage of the 7 cent spike in their favour or should continue to monitor the market and try to covert in the 1.50s.
However Australian dollar sellers should be cautious as the National Bank of Australia believe the Australian dollar is overvalued which I actually agree with. At the moment currency investment continues to land on Australian shores due to the high interest rates.
The main data releases to look out for this week are UK GDP numbers Wednesday morning which are set to show a decline which could lead to further sterling weakness and the Federal Reserve interest rate decision Wednesday evening. It is unlikely the Fed will raise interest rates and I expect a neutral statement by Janet Yellen shortly after. This could lead to a further sell off of US dollars and the Australian dollar could benefit.
For people that are converting pounds and Australian dollars for the first time, it is essential that you get the very best exchange rates. If you have used a brokerage for many years or have been referred a brokerage I strongly recommend you compare rates to make sure you get the best price possible and therefore save money. This simple exercise takes two minutes and in the past I have saved clients hundreds and in some instances thousands of pounds.
My direct email is [email protected] Dayle Littlejohn. Alternatively call me Monday morning on 0044 1494 787 478 and ask the reception team to be put through to Dayle Littlejohn.