The RBA have kept interest rates on hold overnight as many had expected, and comes as little surprise given the pick up in both the Australian and Chinese economy. Commodity prices have also rebounded from their lows as markets wait anxiously for the FED to hike interest rates in its December briefing.
If and when the FED hike rates, commodity currencies such as AUD may weaken as investors seek bigger returns on the US Dollar. This of course, bodes well with the RBA who look to weaken AUD to boost the countries exports. Reserving ammunition is important for the RBA and a FED hike in November or December will provide breathing space for Philip Lowe.
With the news this morning Sterling to Australian Dollar exchange rates took a dive of half a cent before recovering at the start of this morning’s trading session.
The Pound could extend its losses against the Australian Dollar
Ahead of the Bank of England’s interest rate decision on Thursday, which I am expecting some volatility around, Australian import and export data will be released which could sway positively given the pick up in the Chinese economy.
Coupled with stronger commodity prices I am predicting strong data followed by a reduction in the nations trade balance. With the Bank of England’s interest rate decision shortly after there could be further cuts to the UK’s base rate of 0.25% which could push GBP/AUD exchange rates to the mid 1.50’s if one materialised.
Clients looking to buy Australian Dollars may want to consider doing so ahead of the UK’s interest rate decision on Thursday, as a further reduction to the UK’s base interest rate could spell big falls in Sterling exchange rates.