During the early hours of Tuesday morning GBPAUD rates jumped 1.5% in reaction to the RBA’s decision to cut Interest rates from 2% down to 1.75%, a record breaking low for Australia. There has been plenty of pressure on the RBA to cut Interest rates, a number of external factors coupled with poorer inflation points towards an overvalued Dollar.

Inflation Figures below the 2% threshold

The RBA’s inflation mandate sits between 2-3% whilst the most recent level falling below the threshold at 1.7%, the benefits of cutting Interest rates for the economy are two-fold. Cutting rates encourages spending as savers get less from their banks, furthermore an economy that is heavily reliant on its exports also benefits from a weaker currency.

It’s been on the cards for a while that the RBA may cut Interest rates, but we weren’t expecting it without warning, Aussie Dollar buyers have the break they’ve been waiting for.

Housing market and the Chinese economy

Two other factors that have raised concerns for the RBA are the falling housing prices and the huge question mark over the Chinese economy. The Chinese manufacturing sector expanded less than expected, raising doubts about the sustainability of the world’s second largest economy. It’s well known that Australia is effected by Chinese exports and any attempt to maintain trade numbers would be welcomed to the economy.

GBPAUD rates to hit 2.0 mark?

In the early hours of Friday morning the RBA will announce its monetary policy statement and the tonality will play a key part in further weakness for the Aussie Dollar. Glenn Stevens – The Governor of the RBA may wish to downplay the current economic situation which could potentially see GBPAUD rates push closer to the 2.0 mark. But given how poor UK economic data has been, particularly in the manufacturing sector, this is looking relatively unlikely.