What has happened to Pound to Australian Dollar exchange rates?
Since the start of May, the pound has had a torrid time against all major currencies including the Australian dollar. Mid-Market exchange rates at the beginning of May were trading close to 1.8850 and at the time of writing this report, exchange rates have dropped to 1.7975. To put this into monetary value an AUD$300,000 purchase now costs clients an additional £8,000. Bad news for any client looking to purchase Australian dollars, good news for client that are selling Australian dollars to buy pounds.
Tory leadership election: How could this impact GBP/AUD exchange rates further?
The main talking point this month for the UK is the Tory leadership contest. Bookmakers and polls are suggesting that the former Mayor of London Boris Johnson will take over No10 and this is one of the reasons the pound has fallen in value. On the 23rd we will find out who will be taking over from Theresa May. My personal opinion is that the market reaction will be limited if Boris gets into power, where as if Jeremy Hunt is crowned the winner, this could provide a boost for the pound.
Will the RBA cut interest rates further?
The Reserve Bank of Australia (RBA) have cut interest rates to an all-time low of 1% and when a central bank cuts interest rates this tends to put pressure on the currency. In addition, house prices have continued to decline and wage growth is stagnant. If the RBA continue to cut interest rates the pound could recover some of the losses, however I expect the Brexit developments to outweigh and decision made by the RBA.
Recent back-to-back rate cuts have lowered the Aussie interest rate to an all-time low of 1%. The average base rate since 1990 has been 4.39% and the back-to-back rate cut was the first since 2012. Through the 12 months to the end of Q1, the Australian economy grew at 1.8% but during this period house prices declined, and wage growth was minimal.
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