GBP AUD Slides Lower as RBA Hints at Rate Rises in 2018 (James Lovick)

Australian Dollar Strength as Travel Corridor with New Zealand Opens

GBP AUD has fallen lower over this festive period with levels for the pair now sitting at 1.7245. The Aussie was given a boost in the run up to Christmas after the Reserve Bank of Australia (RBA) signalled that it was open to the idea of raising interest rates in the New Year. Clients looking to buy Australian dollars with sterling should pay particular attention to Brexit developments as discussion moves on to the thorny issue of trade.

The Australian dollar had come under pressure after the US raised interest rates in December which put both Australia and the US on a level playing field in terms of where rates are set at 1.5%. The US seeks to reach an equilibrium rate of around 2.5% and this is likely to have a damaging impact on the Aussie as funds move back to the higher yield in the US dollar.

The US has signalled that there is likely to be another two or three rate rises throughout 2018 and this is in theory should help strengthen the US dollar whilst weakening the Australian dollar. The change of stance coming from the RBA however is helping support the Australian dollar as those future interest rate expectations between the US and Australia appear to be more aligned.

As we move into the New Year expect to see a lot more mileage in the Australian dollar depending on events coming out of the US. In my opinion we are likely to see a much faster approach from the US to raising interest rates and this should put pressure on the Aussie. Any jawboning from the RBA however is likely to result in considerable market reaction.

As for GBP AUD expect considerable volatility from any ongoing Brexit developments. 2018 is likely to see major developments as the discussion moves on to the terms of trade. Clients looking to buy or sell Australian dollars can get in touch with me at jll@currencies.co.uk to discuss how these events will have a direct impact on any pending requirements you may have.