RBA cuts interest rates. GBP/AUD forecast

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The Australian Dollar has weakened fractionally against the pound as the Reserve Bank of Australia (RBA) has cut the base interest rate to 1.25%, the lowest recorded level. It was a widely expected move and heavily priced in to the market – hence the reason the Australian Dollar hasn’t weakened more significantly.

What can we expect for the Australian Dollar?

This move by the central bank was expected, with some analysts expecting a stronger cut it suggests there could be further future moves from the RBA. This move was an attempt to get the ailing Australian economy moving, with house prices falling and unemployment levels rising the threat of a first recession since the 1990s is becoming more real.

Historically the RBA have always held their cards very close to their chest and have not been ones to act hastily, therefore I would expect this move to be the last for some while. In my view they are now likely to adopt a ‘wait and see’ approach.

It is also quite telling that he AUD hasn’t weakened further, again showing how vulnerable the pound is in the current climate. Of course Brexit will dominate the pounds movements against most majors for the foreseeable, and therefore anyone expecting to see the AUD weaken in the short/medium term may well be disappointed and I would look for the GBP/AUD levels to fall below 1.80.

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