Currency - GBP / Australian Dollar

The Reserve Bank of Australia left its base interest rate on hold when they last met. Since then, Aussie unemployment has improved markedly and we have also had positive Australian housing data to strengthen the Australian Dollar. On Monday night, the RBA released the minutes of their last meeting and the insight was that they knew the markets, which had unanimously forecast another interest rate hike, would react badly to the RBA’s decision but they felt that they needed some time to assess the effects of past hikes before embarking on further credit market tightening. The markets’ initial reactions was to sell the Australian Dollar but most traders soon came to the conclusion that Australian data is such that another hike is a foregone conclusion and that as long as China continues to grow in spite of its economy calming measures, the Australian economy will continue to out-perform currencies from the other G10 nations. Consequently, the Australian Dollar is pushing lower against the Pound and the spikes of recent weeks are sinking into the distant memory. One of two things will happen at A$ 1.75. Either we will see a break back into the downtrend that controlled this exchange rate for the last few years or we will see a bounce and significant Sterling gains in the weeks ahead. However, for the latter to happen, Sterling will have to be seen in a more favourable light and with an election in the offing and serious debt hanging over the government like a grey mist, the Pound may struggle to make any kind of gains.