The Australian dollar has continued to go from strength to strength against the pound. With the continued support from Central Banks across the world, and containment strategies forcing a positive curve in the spread of the virus, confidence across global markets has gradually returned much to the benefit of the riskier commodity based currencies like the Australian dollar.
This effect was spurred on further this week with key inflation data and positive echoes from the Reserve Bank of Australia (RBA) drawing further appetite to invest down under.
Indeed, the latest Consumer Price Index (CPI) provided by the Australian Bureau of Statistics surprised the markets with a remarkably high 2.2% reading against 1.8% from the respective reading in 2019. To add to this, even the Q1 figure, although yet to be tarnished by the disastrous economic impact of COVID-19 also came out better than expected, hitting 0.3% against the expected 0.2%.
Both sets of figures go some way to justifying the RBA’s decision to hold firm and maintain their Interest rate at 0.5% rather than cutting further. With inflation levels surging to record highs (strongest rise since 2014) the Reserve Bank of Australia has hit its inflation target with a jump in prices for medicine, education, tobacco and food the most notable market movers.
These indexes are often tracked by the markets as it can reflect a certain level of confidence amongst consumers, a clear benchmark for a stable economy. Indeed, if consumers are willing to pay a higher price for their goods, it shows demand across the country can be expected in the long run.
This positive push has left the GBP AUD interbank exchange rate hovering just over the 1.90 mark on interbank rates, providing those looking to buy pounds with Australian dollars with the best levels to capitalise on in nearly 15 weeks. You could argue the only reason GBP AUD isn’t trending below the 1.90 mark is that the markets are waiting to see inflation levels for Q2 before committing. With the Oil crisis seeing a crash in prices and the full effects of COVID-19 in play, the picture for the Australian economy might not be so rosy.
Household Debt a Continued Concern For AUD Holders?
Even before the virus, the ever-growing levels of household debt down under was marked as a key handicap for the Australian dollar. It was even signalled as one of the main reasons the AUD was unable to capitalise as strongly on the pound, as other major currencies did throughout the Brexit years. Overnight we saw the latest Private Sector Credit jump to 3.6% compared to last year’s 2.8%.
It will be interesting to see how the markets react to this as the week comes to an end, particularly given the current lockdown conditions that might make servicing these higher debt levels all the more difficult.
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