Tomorrow is the latest RBA, Reserve Bank of Australia meeting minutes. Investors are closely monitoring this for any news that we could well see key changes in the outlook for the Australian dollar, as the RBA responds to the change in economic outlook for both the global economy and the domestic Australian economy.
Pressures are mounting on the RBA to be more conscious of a consideration for a more dovish, or soft interest rate policy as investors seek to gauge the likelihood that up ahead interest rate cuts will become much more necessary for the Australian economy. China is Australia’s largest trading partner and the market is of the belief continued economic troubles will see the Australian economy suffer, and therefore need to cut rates ahead.
The raising and lowering of interest rates is a big factor in the currency markets, as investors seek to position themselves in a currency which they believe will ‘yield’ a higher return. For example, the higher an interest rate, the stronger generally a currency will be. It is similar to the way that a higher interest rate will attract investment into a savings account.
Likewise, when an interest rate is cut, or investors believe that it might be up ahead, the currency will lose value. This is because it makes the currency less attractive to hold by those concerned with a stronger investment. Such is the case with the Australian dollar at present, as a lower interest rate prediction makes the currency less attractive to hold by investors.
Moving forward, the RBA and Australian economic data will face tough scrutiny as the market gauges the likelihood of the future cuts in the rate. Clients with a position to buy or sell Australian dollars might benefit from a quick review with our team to ensure they are fully up to date with what lies ahead, and how they might benefit from the volatility.
Thank you for reading and please get in touch if there is anything that you wish for us to run through or discuss, relating to a transfer of Australian dollars.