Pound vs Australian Dollar: Will GBP/AUD break through 1.80?

GBP/AUD exchange rates have recently been under considerable pressure with the pound having having fallen 4.5% since the beginning of May. Of course the on-going Brexit saga and the political instability following Theresa May’s resignation has caused a significant sell off for the pound across the board but will this trend continue?

Recently Reserve Bank of Australia governor Philip Lowe has resisted pressure to cut interest rates in line with many other central banks in order to weaken the currency, warning that this would be a “dangerous path”. However many analysts are suggesting he may need to act again at next weeks meeting. Some economists believe he may cut the base rate to 1% citing less than ideal employment figures as a sign a reduction could be necessary.

“We remain short of the unemployment rate associated with full employment, there is significant underemployment and there is further potential for labour force participation to increase when the jobs are there,” he said.

What would another rate cut mean for GBP/AUD?

Should the RBA cut rates next week then ordinarily you would expect the value of the Australian Dollar to weaken as investors seek higher yielding currencies offering greater returns. However in recent times currencies have been known to trend in exactly the oppositi direction of the predicted.

Indeed if you look at the current AUD/USD trend we have seen a big shift back in favour of the Australian Dollar, even with speculation of the RBA cutting rates next week. This is because investors are still wary in the current climate with Brexit and on-going trade war tensions between the US and China. For this reason I still see the Australian Dollar remaining popular and can see a break through 1.80 in the coming weeks. Those looking for GBP/AUD to push back towards 1.85 next week may well be disappointed.

Protect yourself against the Pound falling further

If you need to convert Pounds to Australian Dollars, then one way of avoiding any further weakness in exchange rates is to freeze the rate now with a Forward Contract. We can guarantee today’s rates for up to 2 years, and the rates we would offer you are likely to be considerably higher than your bank or existing broker might offer, by up to 2% or 3%. You could save thousands of Pounds, so for a free no obligation quote, or to discuss our services in more detail please email michael@currencyforecasts.co.uk

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