This morning Sterling climbed to a near half year high against the Australian Dollar as poor data is expected in Australia, caused investors to question the prospects for the AUD. There is thought to be an increase in the unemployment level with wage growth concerns potentially sneaking in. Sterling has suffered against most major currencies this week as Theresa May has come under pressure with a vote of no confidence potentially on the cards. This has caused Sterling to once again weaken however the Australian Dollar has also come under more pressure.
US Interest Rate Hike Pressure
The US Federal Reserve are likely to hold the key to the future of the AUD as they once again look to raise rates in December. The main reason the GBP/AUD exchange rate fell towards the 1.50 level was the return investors could get in Australia as they were the only country along with New Zealand offering returns through a higher interest rate.
The Australian economy is considered a risky place to invest as they’re exposed to market conditions with their main trading partner China. The Chinese are the biggest trading partner for Australia and poor economic conditions there can often filter through to the Australian economy.
Now that the interest levels in the US are expected to rise above and beyond the Australian rate investors are expected to start to move their funds. We have already started to see this process taking place with the AUD losing ground against many major currencies. In my opinion this is likely to get worse over the next few months as members of the FED have suggested there could be as many as three interest rate hikes in the US.
The Australian central bank has previously raised concerns over not being in control of their currency as external factors caused much of the strengthening. This essentially means they will be happy to see the currency weaken, which means people looking to sell AUD might be inclined to do so sooner rather than later.