Australian Dollar Article List

The outlook for GBP/AUD is looking pretty difficult to call at the present time owing to economic happenings over the course of the past 24 hours.

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Dovish RBA minutes should really have helped sterling advance

Dovish RBA minutes released today highlight scope for further interest rate cuts in Australia; we should have seen GBP/AUD higher as a result.

"Last night’s RBA meeting minutes release confirmed the bank’s easing bias, noting that subdued economic growth and benign inflation could give rise to further interest rate cuts. The minutes pointed to the strong AUD when talking about export market weakness," says Richard Driver, analyst with Caxton FX.

Driver says "there is no doubt that this was a dovish minutes release and should ensure further soft trading for the AUD in the weeks ahead."

But - Bank of England will be eyeing today's UK inflation data with interest, and currency markets know this!

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The pound sterling was today torpedoed by inflation that came in well below expectations. Good news for the man in the street - bad news for those looking to transfer money out of the UK and into Australia!

Andy Scott, Account manager at HIFX says sterling has weakened across the board:

"Sterling weakened as speculation increased about the likelihood of more monetary easing by the Bank of England which would have a negative impact on the currency’s value.

"Earlier this year the Bank had been concerned by higher inflation and the risks of stoking it further by more quantitative easing due to the probability that Sterling would fall.

"Their most recent assessment of the inflation outlook is for it to ease further over the next two years and today’s figures seem to back that view up.

However, the long-term picture of lower inflation is certainly a positive for the UK economy, and thus sterling.

Steve Brittan at the Birmingham Chamber of Commerce said: "Businesses will greet today's prediction with cautious optimism. Relatively high inflation is not good for the UK economy at a time when the government is implementing tough fiscal policies.

"Businesses require a stable inflation rate to restore confidence and boost real incomes. The next few months will be critical here and we are edging towards the two per cent target set by the Monetary Policy Committee. If the fall in inflation continues over the Summer, this will be viewed as a positive move. All efforts by the government and the Bank must be to stabilise inflation and give businesses a much-needed boost."

Will weaker Australian dollar keep interest rates on hold

The strength of the Australian dollar in recent years has been a constant headache for the Reserve Bank of Australia.

April's falls in AUD will be welcome, indeed they could even see Australian interest rates kept on hold.

Justin Fabo at ANZ Research says:

"The 4 US cent depreciation of the Australian dollar since the Board meeting, if sustained, will be welcomed by the Bank. The persistently high currency had been a factor in pushing the cash rate lower to support domestic activity.

"In our view, because lending rates are already quite low in Australia, a better mix of overall financial conditions would be a somewhat lower currency combined with no further cuts to interest rates (as lower rates may encourage undue financial risk taking, albeit these risks are probably minimal in the current environment where the appetite for debt is low.)

"Combined with our subdued outlook for overall business investment, however, and an expectation that the currency is likely to remain elevated for a while yet, our view is that the cash rate is still more likely than not to be lowered a little further. We have a 25bp cut pencilled in for later this year."