BOE Interest Rate Decision (Daniel Johnson)

AUDGBP Lower Again with Risk Markets Sell-Off

GBP/AUD – Tomorrow we will see the Bank of England (BOE) interest rate decision. There is a high probability of a hike to 0.75% although personally I feel it would not be justified. There has been several poor data releases, average wage growth has fallen along with retail sales. Unemployment is being lauded as the lowest in over forty years, this however is misleading as current data includes zero hour contracts which is far from a stable form of employment.

Be wary of thinking a hike could strengthen the pound. The market moves on rumour as well as fact so it could well be the case that you will not see Sterling rally if a hike goes through. The real market mover will be Mark Carney’s speech following the decision. This is where he will discuss future monetary policy, if a hike goes ahead Carney could indicate that there will be any further rate hikes for the foreseeable future.

If this does occur we could see Sterling weakness following the decision.

GBP/AUD still remains range bound between 1.75-1.80. The Aussie is currently being held back by the ongoing trade war between the US and China. Australia is heavily reliant on China purchasing it’s exports. China’s growth could be effected by the trade war which in turn will hit the Australian economy. Investors are moving from riskier commodity based currencies to safe haven currencies. The US Dollar is currently the destination of choice despite the US involvement in trade wars on several fronts. Ten year treasury bonds are currently offering the best returns in years and interest rate levels are impressive, there could also be further hikes from the Federal Reserve this year.

If you have to move short term buying AUD aim to move if Interbank is in the 1.78s.

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