GBP/AUD falls to mid $1.80s

Aussie dollar benefits from European turmoil

The Australian dollar has now gained six cents against the pound over the last month, as problems in the Eurozone help push GBP/AUD lower. Both the antipodean dollars have benefitted from these issues, as investors seek higher yielding assets. Low oil prices have also had a positive knock-on effect on the Aussie dollar, which has recently lifted itself from a five and a half year low against the US dollar.

The graph below shows GBP/AUD movement over the last month.

GBP/AUD 1 Month


While the Australian dollar has been strengthening, the pound has been weakening. Sterling is currently on the back foot, as investors are now not expecting an interest rate rise from the Bank of England at any point during 2015.

The pound had a good run in early 2014, as speculation mounted over a change in monetary policy from the UK central bank. However, as the economic recovery has slowed and inflation continues to fall, the chances of an interest rate rise this year are slim – the BoE would be unwise to raise rates while inflation was falling.

In fact, the ECB and the Swedish Riksbank cut their interest rates in an attempt to combat slowing inflation. This seems to have had little effect in the Eurozone, as figures earlier this week confirmed the currency bloc had fallen into deflation, with prices falling 0.2% in December. This was the first time prices have fallen since the height of the financial crisis back in 2009.

Boris Schlossberg, managing director at BK Asset Management, had this to say of the strengthening of the Australian unit, “One of the side benefits of lower (oil) prices may be a better than expected growth out of China, which in turn could help boost Australia’s fortunes this year. Little wonder then that the euro/Australian dollar trade is attracting carry flows, as investors seek to benefit from it’s relative strength.”

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James Baxter

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