Following the Reserve Bank of Australia’s Governor Philip Lowe’s ‘dovish’ suggestion that Australian interest rates would ‘remain steady’ at 1.5% for the time-being, the Australian Dollar has weakened slightly – with the GBP/AUD rate sat at 1.6520 at the time of writing. However, the general tone from the RBA has definitely been for a positive move for interest rates rather than the negative, although they do see this as a long term move, with Philip Lowe saying in his statement to a parliamentary panel on Friday:
“Current market pricing implies greater probability of a rate rise than a rate reduction, it also implies that the next move in interest rates is a long way out”
Interest rate movement is a key driver for exchange rates and his comments when teamed with other events, such as the North Korean situation have seen the Australian Dollar weaken slightly.
This is generally the case with the AUD, where it rises or falls in line with global sentiment to risk. The Australian Dollar is currently attractive to investors because of it’s higher yield, but with potential conflict in the headlines investors seem to be moving to ‘safe-haven’ currencies to mitigate risk. Any more news on the situation between the United States and North Korean is likely to affect the AUD further.
With the RBA forecasting economic growth at 3% and being especially keen not to allow household debt to rise too sharply many analysts do not expect them to raise interest rates during 2017. With many looking to the unemployment rate as a key indicator of the likelihood of a hike.
Looking at the week ahead for the GBP/AUD rate, Sterling will probably continue to struggle as Brexit reality start to hit the UK economy, and with unemployment data for Australia due on Thursday, there could be some volatility. Generally, I expect the GBP/AUD rate to drift slightly higher.
Data releases that could move GBP/AUD next week
Next week we have some key UK data in the form of Consumer Price Index (Inflation) on Tuesday, Unemployment figures for June (Wednesday) and UK Retail Sales (Thursday). Australia’s Unemployment data also due on Thursday could be the key release for AUD next week.
