Pound Vs Australian Dollar exchange rates fell against the Australian Dollar overnight following an interest cut by the RBA (Reserve Bank of Australia) by 0.25%. This has brought Australia’s base rate to a record low of 1%
This was very much predicted, as I alluded to in my post last week. Indeed the pound fell below 1.80 for the first time since February, with the Australian Dollar now rallying nearly 5% against the Pound since early May. As I predicted in my blog last week, under normal circumstances following a rate cut you would expect a currency to devalue. However, the Australian Dollar rallied nearly 0.5 cent. This highlights just how out of favour the Pound currently is.
What now for the Australian Dollar?
The Australian economy has been under performing in recent months, leading to this move from RBA governor Philip Lowe. This is the first time the RBA has cut in successive months since 2012.
Dr Lowe said the economy had grown below trend over the past year, with household consumption “weighed down by a protracted period of low income growth and declining housing prices”.
While employment growth had been strong, there had been little inroads made into the economy’s spare capacity,. This means overall wages growth “remains low”.
A record low of 1% should mean a reduction of flows of money into the Australian economy. Due to this I would look for a fall in value for the Aussie against currencies such as the USD, potentially a move back to 1.45/0.6896. We may also see AUD/EUR take a slight knock. As for AUD/GBP the Pound is still extremely vulnerable to Brexit developments, along with the on-going fight for Number 10. Therefore I would still expect the Australian Dollar to remain strong for the foreseeable future.
Do you need to buy or sell AUD?
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