- Strong AUD hurting country’s exports
- RBA unlikely to cut rates tomorrow
- Further cuts may be needed near-term
RBA cut unlikely tomorrow
The RBA have recently cut rates following concerns over slower inflation, putting interest rates at another record low of 1.5%. It is not expected that they will cut rates again tomorrow despite a strong Australian Dollar.
The Australian Dollar does not benefit from a strong currency, given its heavy reliance on its exports, the economy performs much better with a weaker currency. Investors tend to flock to commodity currencies during times of uncertainty, as currencies such as the Australian Dollar yield better returns from their higher interest rates.
The US are still waiting for their long overdue interest rate raise, which Janet Yellen of the FED has promised if the economy continues to perform. However following Friday’s poor Non-farm payrolls, there is every possibility a FED hike could be off the table this year.
A FED hike would likely weaken the Australian Dollar, as investment would move out of commodity currencies into the safer US Dollar.
The RBA may need to act at their next interest rate decision
With the upcoming US elections, it’s even more unlikely that the FED will raise rates, and given the market volatility towards political events, AUD may find even further strength in the weeks ahead. I am therefore expecting further cuts to be actioned in the next couple of months to balance its key export sales.
The Australian Dollar is currently trading at a 20 month high against the Chinese Yuan, one of its major export partners.
If you are buying Australian Dollars with Sterling in the short term, GBPAUD exchange rates are sitting at a month high.