GBP/AUD Trading Near 4 Month Low
The Australian Dollar like many currencies is trading at a 4 month high as the demise of Sterling appears to be continuing.
I had previously spoken about an interest rate hike coming in Australia following the Reserve Bank of Australia announcing they want interest rate levels to rise to 3.5%. However earlier this week the Reserve Bank of Australia (RBA) Chief Philip Lowe suggested that there isn’t going to be a rate hike until the economic conditions improve.
When will Australian interest rates be raised?
The inflation levels in Australia fell below the 2% target rate that the RBA set and until that level is breached there will not be any further interest rate hikes to come.
Considering the current interest rate is 1.5%, the RBA plan to increase the current level by 2%. Normally a central bank will raise rates at increments of 0.25% in some cases 0.5%, therefore in the best-case scenario there will be at least 4 interest rate hikes to reach the planned level.
What’s next for GBPAUD?
Whilst Sterling is struggling with uncertainty, mainly from Brexit negotiations which are going to last a further 1.5 years at least, the GBP/AUD rate could fall into the 1.50’s.
There is always an argument that the UK will have its own interest rate hike and any positive news regarding Brexit could buck the current negative trend. But the honest argument would have to side with AUD strength in the short term.
There is a Bank of England (BoE) interest rate decision next week which should provide an indication into their thoughts. If there is optimism from the BoE, and Governor Mark Carney provides a hawkish statement then Sterling could jump, but I personally don’t think it’s likely.