Australian Dollar Forecast – Will AUD Strength Continue?

AUD GBP Higher Despite Higher UK GDP Number

Overnight, the Australian dollar forecast has weakened slightly, as the latest Consumer Inflation expectations data released showed a small dip in consumer expectations of rising inflation.

This is generally a sign that consumers are less positive about the future and indicates a lower probability of an interest rate hike. It is a fairly mid-tier release and hasn’t generated any dramatic market movement.

GBPAUD interbank rates are currently 1.8311 whilst EURAUD is 1.6416. In other news in the last 24 hours the latest US Federal Reserve Interest Rate decision saw some interesting movements on US dollar rates where the US dollar did initially lose value as the Fed announced there were interest rate hikes due in the US before 2022.

Federal Reserve Chairman Jerome Powell in fact hinted that the Fed were not even thinking about thinking about interest rate hikes, in a dovish move which highlights the view point that the Fed are very much in a wait and see situation, to see how the economy progresses.

All of this is very important for the Australian dollar since as a commodity currency influenced by global attitudes to trade, the outlook and behaviour on the US dollar can shape sentiments on the Aussie.

Where the Australian dollar has been rising in recent weeks, does chime with a gentle softening of the US dollar, where investors have been searching out new returns. Whilst the RBA (Reserve Bank of Australia) do not appear to be considering raising interest rates themselves anytime soon, their 0.25% is still higher than many of the negative or 0.1% levels like the UK and the USA.

Australia is suffering from the overall decline in global economic activity in 2020 but by being one of the least affected countries in terms of the numbers of cases and reported deaths from COVID, it has allowed the country to emerge in a more positive light.

With many countries still struggling with lockdown measures and economic malaise, Australia’s rapid response to shutting down and protecting the economy might continue to serve it’s economy and currency well in the future.

Have GBPAUD Exchange Rates Bottomed Out?

Pound to Australian dollar exchange rates bottomed out at 1.8066 on the interbank rate on the 4th June, but have now retraced back to over 1.83. Increased speculation over the economic outlook for the global economy may continue to play a role on the Australian dollar against sterling, with investors looking to back economies and currencies that will be able to withstand the pressures ahead.

With the UK struggling under the weight of Brexit pressures and the Bank of England having been reported to be considering negative interest rates, there may well continue to be added weight for the pound to contend with ahead.

Next week could be a crucial time for GBPAUD exchange rates as investors seek greater clarification on these two points, Brexit and interest rates. There is a key interest rate decision for the UK and also the latest EU Summit where the UK’s withdrawal from the EU will feature.

For the rest of this week there is the latest UK GDP (Gross Domestic Product) figures due tomorrow morning at 7 am which might well be a market mover for GBPAUD levels. It has been said that much of the bad news being released surrounding the global economy is being partly ignored by investors as everyone is suffering. However, these news releases are important and can help to shape expectations on interest rates, a key factor which determines the strength and weakness of a currency.

For now, the Australian dollar’s rise has been gently tempered with a slight shift in the status of the US Dollar. The US dollar is a key safe haven currency and it had been weakening with progress made in tackling the worst immediate concerns of the Coronavirus.

Should the US dollar begin to weaken again however, it might well be that the Australian dollar is a benefactor, which could further increase its strength against the pound and other currencies, in line with the well documented behaviour of risk sentiment and currencies responses to global attitudes on trade.

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