GBP/AUD Choppy over Referendum Fears

James Baxter Senior Currency Broker GBP/AUD Choppy over Referendum FearsJames Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]

GBP/AUD Trading at 1.95

The GBP/AUD has been pretty volatile this week as concerns over the outcome of the EU referendum, and choppy trade for the commodities currencies, has pulled GBP/AUD around like a currency tug o’war. The graph below shows GBP/AUD movement over the last 7 days.

GBP/AUD exchange rate graph

GBP/AUD 7 Days

It’s evident from the graph above that the pound has had a pretty rough week against the Australian dollar. In fact, sterling dropped to a nine month low earlier in the week, and dropped to a 7 year low against the US dollar on Monday. The pound has had a poor start to 2016 as the Bank of England have poured cold water on the idea of an interest rate rise and the uncertainty around the referendum has also weighed heavily on the pound.

In a speech following the Bank of England’s recent quarterly inflation report, Mark Carney suggested that the UK central bank would only consider raising interest rates once inflation in the UK returns to the Bank’s target rate of 2%, adding that inflation conditions were likely to remain subdued as the price of oil remains so low. Analysts now forecast the rate hike to take place at some point in 2018 and some are even suggesting that the next shift in monetary policy may actually be a cut in interest rates, something that Mark Carney has not yet ruled out.

Worryingly, many of the major investment banks are forecasting a potential 15%-20% depreciation of the pound if the UK votes to leave the EU. This would push GBP/AUD down to levels not seen in over 2 years. Of course, movement in GBP/AUD will also depend on developments in Australia, the States and China, Australia’s main trading partner. The slowdown in China has recently weighed heavily on the Australian currency.

Announcements from the US Federal Reserve will also be watched closely. The Australian dollar has benefitted recently as it now looks as though the Fed are in no hurry to raise interest rates again, having tightened policy back in December. With US interest rates look set to remain on hold, investors have moved back to the Australian dollar, in search of higher yields. Australian government bonds are still offering some of the highest rates of return of any of the developed nations. The increased demand for the Aussie has strengthened it in the process, helping push GBP/Down below $2, levels not seen in over 9 months.

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James Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]