Pound to Australian dollar rates: Why is the pound dropping against the Australian dollar?

Pound to Australian dollar rates: Why is the pound dropping against the Australian dollar?

This week the Reserve Bank of Australia (RBA) cut interest rates by 0.25bps. History tells us when a central bank cuts interest rates that tends to devalue the currency, however this week the pound has continued to lose value against the Australian dollar and many of my clients want to know why.

AUD rates: US / China Trade talks positive for the Australian dollar

At the G20 summit President Donald Trump of the United States and President Xi Jinping of China appear to have had a positive meeting in regards to the trade war and the trade negotiations will be opened once more. As Australia heavily relies on China, this event has been seen as a positive for China and therefore Australia. In addition, the interest cut that did materialise last week was expected therefore it appears that investors had made their moves before the event, this is known as the market ‘pricing in’.

Pound to Australian dollar rates: Brexit main concern for the Pound

The on-going Brexit saga is of course the main concern in the UK. A change of approach is on the horizon as it appears Boris Johnson may become the next Prime Minister.

Even though the former mayor of London has announced that he wants a deal with the EU, he has stated that come the end of October, if the UK and EU haven’t reached a compromise the UK will crash out of the European Union on WTO terms. Again history tells us that when the chances of leaving the EU without a deal increases the pound loses value and that’s why I believe the pound continues to decline.

Later in the month, on July 23rd, the Conservative Party will announce who will become the next Prime Minister. If you are exchange pounds to Australian dollars this month, making a decision before this event may be sensible. If Boris gets into power I expect a further fall, however if Hunt surprises the market the pound could recover some of the losses.

Later in the month, the US are set to release their latest interest rate decision. A cut is expected which could force investment out of the US dollar and into commodity currencies such as the Australian dollar, therefore the AUD could have a good end to July.

If you would like to ask me any questions about Pound to Australian dollar exchange rates, or would like to discuss exchange rates in general please feel to contact me directly using the form below.