The Australian Dollar has continued to strengthen in recent weeks, and a number of factors have accelerated this growth.
AUD isn’t just gaining value against the Pound, it’s also gaining against the US Dollar where the headlines make clear that AUD/USD breached a key threshold of 0.78 cents which has begun to concern some economists and financial commentators.
The concerns for the Australian economy regarding an overvalued currency stem from Australia’s heavily export driven economy, and the more expensive the Aussie Dollar the less competitive the Australian export industry is likely to become.
Normally when there are fears of an overvalued currency the central bank of the country in question is able to mitigate these effects through the use of interest rate changes, but with an already overheating property market the Reverse Bank of Australia (RBA) is concerned of making mortgages even easier to obtain and therefore fear another spike in the property market.
The gains for the Aussie Dollar against the Pound increased even further this morning. This followed a surprising drop in the rate of Inflation within the UK. Additionally, the Aussie Dollar was boosted earlier in the week after the Chinese economy showed that it is growing at a higher rate than many were expecting. The reason the Aussie Dollar received a boost off the back of this news is because of the connection between the two economies. China is Australia’s largest trade partner and a major consumer of iron ore, coal and gold with they source from Australia.
The Pound to Aussie Dollar exchange rate has lost over 10 cents in the past month and a half, and despite the RBA attempting to talk down AUD I personally think that we could see the rate fall as low as the 1.50’s once again.