GBP/AUD Heads Higher
The Aussie dollar has had a rough ride since my last post, losing over 4.5% in July, thanks to falling commodities prices and increasing concern over the Chinese stock market situation. The Australian dollar has fallen significantly, dropping to 2.13, a move reflected in other commodities currencies, namely the Kiwi and Canadian dollars, both of which have slipped to trade above $2 to the pound. The graph below shows GBP/AUD movement over the last month.
There is also concern that as the US Federal Reserve begin hinting at an imminent interest rate hike, the Aussie dollar will weaken further. Having said that, the Reserve Bank of Australia are keen to keep the dollar weak, convinced that a weak dollar is key to a balanced, sustained recovery. Historically, the Aussie unit has benefitted from relatively high interest rates with investors using the currency for carry trades. If the US begins raising interest rates, there will be a narrower margin between the base rates of Australia and the US, making the AUD less attractive and weakening it in the process.
The situation in China has also been weighing heavily on the Australian currency, compounded by extremely low iron ore and coal prices, two of Australia’s main exports. Much of Australia’s iron and coal is exported to China; Chinese weakness therefore directly effects the price of the Australian dollar through reduced demand for Australian mined raw materials.
On the sterling side of the cross, the pound has been performing well of late, helping push the GBP/AUD rate higher. Figures released by the Office for National Statistics on Tuesday morning showed economic growth of 0.7% in the UK during the second quarter and 2.6% year on year, pushing GDP capita up to pre-crisis levels. This has fuelled speculation that the Bank of England may look to raise interest rates soon, with Mark Carney saying that the UK would need to see sustained growth of 0.6% per quarter to remove the spare capacity within the economy, warranting an interest rate hike. The pound has strengthened against most of its major counterparts as a result.
Do you need to buy or sell Australian dollars?
If you’d like to take advantage of the current GBP/AUD exchange rate, or if you’re holding dollars and are concerned about further adverse movement, contact me today for a free, no obligation consultation on +44 1442 892 062. Alternatively, email me directly at [email protected]
Written by James Baxter, Senior Currency Broker.