The sterling vs Australian dollar interbank exchange rate has weakened by almost one cent in the last day, or by 0.49%, from a peak of 1.9154 yesterday to 1.9061 today at the time of writing.
The pound has weakened against the so-called Aussie dollar, partly because the United States’ and Iran’s military skirmish appears to have cooled down.
Last Friday 3rd January, America announced that it had killed Irani General Qasem Soleimani, and yesterday Iran responded by striking two US military bases in Iraq.
However, following these attacks, US President Donald Trump has tweeted that Iran “appears” to be standing down, adding that “All is well!” In particular, this is because no American personnel died in yesterday’s Irani strike.
De-Escalation of US/Iran Conflict Benefits Aussie, as a Commodity Currency
This has strengthened the Australian dollar, in part because the AUD is what’s called a “risk currency”. This means that, when the global geopolitical situation is tense, the Aussie dollar tends to weaken, and when tensions cool, the Australian dollar rises again.
This is because Australia exports vast quantities of commodities, such as iron ore and coal. So Australia’s economy is sensitive to worldwide military events, and its currency too. As a result, yesterday’s seeming truce between the USA and Iran has lifted the AUD.
AUD might be influenced, as bush fires continue Down Under
However, looking ahead, bush fires continue to ravage millions of acres of Australian land, destroying thousands of homes and killing dozens of people so far.
It’s thought that this may weaken Australia’s economy, as the country attempts to control the blazes, and households and businesses respond by spending less.
Moreover, the Reserve Bank of Australia (RBA) looks likely to cut interest rates in February, below their current 0.75%, to try and support Australia’s economy during this natural disaster. This may affect the value of the AUD, looking forward.
Turning to the UK, sterling is being supported by hopes for a compromise approach to Great Britain’s and Europe’s future trade deal negotiations.
In addition, this morning Bank of England Governor Mark Carney will deliver a speech, in which he may discuss the outlook for UK interest rates and monetary policy. The speech could be worth watching, for its effect on the GBP to AUD interbank exchange rate.
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