Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

What next for the Australian Dollar?

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The Australian Dollar has had an interesting couple of days, with drops against the Euro and Pound Sterling as markets deemed recent comments from both Mario Draghi and the Bank of England as positive to monetary policy for the EU and UK.

close up of australian dollar noteIt’s not all bad news though, the GBP/AUD spikes that were expected following the UK snap election have obviously not materialised and anyone looking to buy Australian Dollars with Pounds was left feeling disappointed, and it looks like Aussie Dollar strength could be on the horizon.

Australian economy becoming more robust

Despite a slow start to the year, with retail sales slowing and housing construction falling, the Australian economy is looking like it could be improving. Chinese demand for Australian raw materials tends to dictate the strength of the Australian Dollar and the recovery in the price of iron ore along with increased demand from China as new construction projects begin is helping the AUD’s value.

Reported “tightening financial conditions” in China could be a worry and could negatively impact the value of AUD, however I agree with the comments from UBS that, “China is not the only market for Australian goods and the backdrop of wider global growth is expected to support the Australian Dollar”.

The direction for the Australian Dollar could be influenced by the key interest rate decision from the Reserve Bank of Australia (RBA) next week. The RBA are expected to continue to hold interest rates at 1.5%, as they have since last August, which could see the Australian Dollar strengthen slightly.

GBP/AUD exchange rates

For those looking to buy Australian Dollars with Pounds it is worth considering a move this week. The Pound is up against the Australian Dollar currently, but the AUD could rise next week and there is always the danger of some news concerning Brexit negotiations hitting Sterling’s value.

RBA Fears as AUD Strengthens

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Aussie dollarThe Reserve Bank of Australia has remained optimistic recently as the value of commodity prices have settled. However there is cause for concern, as the currency continues to strengthen further the exports have slowed. Australia is a major net exporter of raw materials and the global slowdown may have started to take its toll on the economy.

The RBA have a challenge currently as one of the only countries in the western world where you can gain interest on your savings. This has meant large investments being put into the Aussie Dollar which in turn has increased the strength. If the RBA were to cut rates again then investors may no longer get the returns they want and there could be a sell-off which would dramatically weaken the Aussie.

China nerves close to tipping point

There is no shortage of data coming from China this week and there is a general concern about the state of the economy. The large amount of debt in China appears to have become apparent and it looks like concerns may become realities. This week there will be trade balance data with an expectation of a reduction of exports and an increase in imports. China has become an economy built on lending and there are major fears of a housing bubble collapse just around the corner.

President Xi Jinping in a meeting last week asked policy makers to “control asset bubbles”, many believe this was him directly addressing the housing market. The market crash at the start of this year in China was down to the huge amount of household debt levels. China’s influence on the Australian economy is very significant as its biggest trading partner. There is little doubt that if there was to be a crash in China the Aussie Dollar would weaken dramatically.