Earlier this week the Reserve Bank of Australia cut interest rates down under once again, although the market reaction was substantially more subdued when compared with the previous rate cut.
Currency markets remained relatively unchanged off the back of this week’s cut, and this was because the markets anticipated this cut, and it was already priced into AUD exchange rates prior to the release. This was in stark contract from just a few months back, after the RBA cut the rate down from 2.00% to 1.75% and the Pound gained roughly 10 cents vs the Aussie Dollar predominantly due to the fact it caught markets off guard.
Since the ‘Brexit’ Mark Carney has alluded to an Interest Rate cut in the UK for the first time since May of 2009 in order to mitigate the negative effects the ‘Brexit’ is likely to have on the UK economy. The Bank of England’s Monetary Policy Committee had the opportunity to cut rates last month but didn’t, and this drove the Pound upward.
I wouldn’t entirely rule out a similar move tomorrow as since the ‘Brexit’ there’s been a lack of economic information released to provide us with an idea of the UK’s economic health, so it may be that the Bank of England doesn’t wish to make any decisions on Monetary Policy as of yet.
Moving forward I do expect the value of the Pound to decline vs the Australian Dollar as the year progresses, as I think the Brexit will have a negative knock on effect to the UK economy and this will apply downward pressure on the Pound’s value.