GBP/AUD Higher After RBA Announcement

GBP/AUD Trading Above 2.17

It’s been a fairly turbulent week for the Australian dollar, weakening and then strengthening with the collapse and then stabilisation of the Chinese stock market. Over the past 24 hours, the Australian dollar has again weakened after the RBA announced overnight that they would be keeping interest rates on hold, staying at the record low of 2%. The graph below shows GBP/AUD movement over the last 7 days.

GBP/AUD 7 Days

On Tuesday morning the Reserve Bank of Australia left the cash rate at the record low of 2% for the fourth consecutive month, having already cut the benchmark rate twice this year. The decision was widely expected as the RBA now seem happy with the current strength of the Australian dollar. Earlier in the year, the RBA were intent on weakening the local currency, cutting interest rates twice and jawboning the currency at every opportunity. Global market conditions are now keeping the Aussie weak and so the Australian central bank now seem content with current levels. Economic uncertainty in China and historically low commodities prices have weighed fairly heavily on the AUD over the past few months, pushing the currency down to 8-year lows against both the pound and the US dollar.

The recent volatility in the Chinese stock market has weighed heavily on the Aussie, as the Australian economy relies heavily on exports to China. Much of Australia’s iron ore is shipped to Chinese ports, and with the price of iron ore being so low, the negative implications for the Australian currency are more pronounced.

On the sterling side of the cross, the pound has actually been preforming poorly against most of its major counterparts, barring the commodities currencies. The UK currency has dropped significantly against both of its two main counterparts, the EUR and USD, losing nearly 8 cents to the euro over the last month. The pound had been performing robustly in early summer as speculation mounted over a potential early rate hike from the Bank of England. This now looks increasingly unlikely, particularly as the Fed Reserve also seem to be in no hurry to raise rates, and the pound has begun losing ground as a result. It has only been propped up against the commodities and emerging market currencies as global risk appetite has seen investors favour safer currencies, the EUR, JPY and USD being the major beneficiaries.

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