GBP/AUD exchange rates heading back toward 1.90

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GBP/AUD exchange rates have rallied back against the Australian Dollar in the last few days pushing back to 1.87 and seemingly heading towards 1.90. This move comes ahead of the Reserve Bank of Australia monetary policy statement overnight which will give clues as to the future direction of interest rates for the Australian economy.

Sentiment from the central bank has been quite dovish this year which has kept the Australian Dollar in check and although they have kept interest rate son hold at the latest meeting, it is expected the latest statement will again hint that the next move will be a negative one in order to try and stimulate the Australian economy.

The reasons the Reserve Bank might cut rates are fairly obvious – stagnant household incomes, weak retail trade spending, weak wages growth, low inflation growth, a weak economy overall. This has been the case for a little while now but the RBA has decided not to act. However it appears this tactic has not been having the desired impact and hence whey many analysts expect a rate cut is just around the corner.

Will the AUD weaken further?

In my view yes. We may actually see a further decline overnight if the monetary statement supports the view that the next move will be a cut.

Often central banks will keep their cards very close to their chests, and again this may be the case with the RBA. However it seems clear that their current policies are not having he desired impact with a slowing Australian economy. I would look for a dovish tone from the RBA statement and hence would expect further short term losses for the Australian Dollar. Look for GBP/AUD exchange rates to move towards 1.90

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