The Sterling to Australian Dollar exchange rate had a quiet day with little over half a percent of movement as the summer lull sets in. Tomorrow however things might start to pick up as the latest Inflation Expectation for August is released.
There has been a large amount of hype surrounding the Australian Dollar of late since the Reserve Bank of Australia (RBA) suggested they will look to raise interest rates by 2% over the next few years. The main trigger for forecasters will be how fast inflation rises. If the inflation level does rocket in Australia then we could start to see multiple interest hikes in quick succession, with a 0.5% even on the cards.
Tomorrow’s Inflation data release will provide a indication and there may even be some commentary from the RBA about their own expectations moving forward.
The Aussie Dollar has been incredibly strong of late, this is predominantly because Australia is one of only a few of the major economies which has interest rates above 1%. This has seen an influx of investment in the AUD, and I certainly wouldn’t be surprised if there was more of this to come if it appears more likely that further interest rates hikes are on there way.
Considering the GBP/AUD rate is currently residing around the 1.65 level and with little good news for Sterling on the cards, a movement to the low 1.60’s could be a real possibility. The exchange rate has fallen below 1.60 since the EU Referendum, and considering at the start of 2016 it was considerably above 2 there has been a major drop.
Over the course of the next few months I think that it is very unlikely to move above 1.70 and any movements to the high 1.60’s should be considered as a short term gain.