In this post I will take a look at the recent trends for the pound against the Australian Dollar and look at what could impact the short term trends for the pound against the dollar.
As with many currencies the Australian Dollar has seen some significant sings in recent weeks having traded within a high /low range of of 1.8445 to 1.7299 a spread of 6.2% in just over three weeks. This is a pretty significant and I will explore below as to why this has happened and my thoughts on the future trends.
Why has the Australian Dollar weakened?
On the 12th December the GBP/AUD exchange rate was sitting at 1.7299 and by early January the Australian Dollar had devalued to fall below 1.80. There are a number of factors as to why I believe this has happened and as to why it has fallen. Firstly on going trade tensions between the US and China and the potential restrictions being imposed as caused a fall in economic growth in China.
With Australia being the largest net exporter of raw materials to China, a fall in economic growth would tend to mean a fall in demand for these raw materials and hence a fall in export demand of these good. The net gain of this is a fall in value for the Australian Dollar. This has be felt against a host of currencies inclusive of the Euro.
We have also seen a mix of poor data sets from Australia in recent weeks, and these, combined with limited expectations of any short term interest rate hikes from the Reserve Bank of Australia has keep the Aussie on the back foot.
Where now for pound against the Australian Dollar?
We have recently seen the Australian Dollar gain back nearly 2% against the pound and I believe those looking at buying the dollar may have missed the highs. It would appear demand for the risk-correlated Australian Dollar was supported by market optimism that US-China trade negotiations were progressing, and were little affected by yesterday’s mixed Australian trade results. Australian Dollar investors will be reacting to today’s Australian building permits report, and the Federal Reserve’s latest meeting minutes results this evening may also have an impact on risk-sentiment. It is unlikely the Fed will look to raise interest rates in the coming months and this may cause a sell off for the US dollar and a drive to riskier assets like the Australian Dollar. I would look for the pound to trade at 1.75 in the short term.
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