Is there still a rate hike still on the cards form the BOE?
We have seen Sterling fall in value against the Aussie of late following poor retail and inflation data. There was a host of positive data before this including a significant increase in average wage growth and unemployment hitting a 43yr low. We also have a transitional Brexit deal all but agreed with the UK being granted single market access until full exit from the European Union.
It was almost nailed on there would be a rate hike from the Bank of England (BOE) in May. Inflation slowed however, falling below average wage growth and retail sales was predicted to come in at -0.5% in at arrived at a shocking -1.2%. Mark Carney spoke on the BBC following the retail figures and said there is the possibility of monetary policy change, but did not mention May. The markets were fairly stagnant following the data release, but Carney’s words or lack of them caused Sterling to weaken against the majority of major currencies.
Despite this a rate hike is already factored into current levels, if the hike occurs do not expect a huge movement in the pound’s favour, the market moves on rumour as well as fact. The danger is if there is no hike. The pound will lose significant value. It is always worth keeping an eye on Carney’s speech after the rate decision as any hint at a change in monetary policy can cause volatility.
I am of the opinion Sterling is chronically undervalued ant that we are only seeing current levels due to the uncertainty surrounding Brexit. AUD has been considered an investors choice due to it’s high levels of interest, but now with the USD promising higher returns and further rate hikes combined with it’s reputation as a safe haven currency it is almost a no brainer to move to the US Dollar. I doubt the Reserve Bank of Australia (RBA) will raise rates until 2019 at the earliest.
There is also the ongoing trade war with the US and China. The new tariffs could hit Chinese growth which will in turn hit the Aussie as Australia is heavily reliant on China purchasing it’s raw materials, particularly iron ore.
I personally think short to medium term GBP/AUD will be stuck between buoyancy levels of 1.80-85.
If you are an AUD buyer and have to move short term, aim to move in the 1.84s.
AUD sellers, I would not hang on for significant gains as I feel the Aussie is fragile. Aim for 1.82 on Interbank.
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