Australian Dollar Appreciates Versus US Dollar, Euro, Pound Sterling After RBA Leave Policy Unchanged

Australian inflation takes shine off the Aussie currency ahead of the interest rate cut decision in the policy meeting this coming week: How to trade the AUD/GBP now?

• The Euro to Australian Dollar exchange rate today (01/11/16): -0.66pct at 1.43273.
• The Pound to Australian Dollar exchange rate today (01/11/16): -0.62pct at 1.59859.
• The Australian Dollar to Pound exchange rate today: +0.62% at 0.62555.
• The Australian Dollar to US Dollar exchange rate today: +0.82% at 0.76697.
• GBP/AUD jumps on BoE Carney term speculation, but RBA leave monetary p[policy unchanged, boosting AUD exchange rates.

The British pound saw a small relief rally against Aussie dollar late yesterday, however, the AUD exchange rates rallied against the EUR,USD and GBP overnight after the Australian central bank elected to leave their monetary policy unchanged.

Ahead of the decision, the Reserve Bank of Australia (RBA) was expected to leave interest rates on hold for another month at 1.5%.

Should the RBA cut the rate down to 1.25%, however, as some have speculated, the Australian Dollar could well crash, which would allow easy GBP gains against it.

Confidence in the antipodean currency was boosted by an uptick in the TD Securities Inflation Estimate for October, which suggested that the Reserve Bank of Australian could remain on a neutral policy bias for longer.

This prompted the GBP/AUD exchange rate to slump sharply on Monday morning, particularly as the appeal of Sterling was generally weakened.

Before the weekend the GBP AUD exchange rate stabilised close to the week’s opening levels, after a turbulent few sessions saw the Pound plummet against the Australian Dollar in response to rising iron ore prices.

Latest Pound/Australian Dollar Exchange Rates

GBP AUD Exchange Rate Hampered by ‘Brexit’

‘Brexit’ sentiment caused a mid-week drop of around two cents in the Pound to Australian Dollar rate thanks to comments from the UK Chancellor Philip Hammond.

The Chancellor remarked that he would be willing to authorise additional quantitative easing should the Bank of England request it, causing traders to flee as they feared further monetary loosening.

The Australian Dollar was also provided with momentum by stubbornly high iron ore prices, as the price of the key Australian export continued to rise, reaching a peak of $62.70 per tonne.

However prices eventually fell on Friday, with iron ore sliding by 0.6% to $62.30 as analysts warned that prices may have been inflated by speculation.

Will the US Election See Australian Dollar Exchange Rates Slide?

The Australian Dollar (AUD) was beaten back by Sterling (GBP) towards the end of the week, with the British currency recovering from an over three-year low on Wednesday as rising bets of a December rate hike from the Federal Reserve caused the US Dollar to pressure the ‘Aussie’.

The Australian Dollar is also likely to feel the weight of the US presidential elections over the next week as America prepares to vote on November 8th.

Ahead of the weekend, Democratic candidate Hillary Clinton was widely expected to beat her Republican rival Donald Trump, with traders likely to flock to the ‘safe haven’ of the US Dollar just in case of a surprising Trump victory.

Such a move may leave the Australian Dollar struggling against peers like the Pound.

Five Day Currency Forecast for Pound Australian Dollar (GBP AUD) Exchange Rate

A better than expected rise from 1.0% to 1.3% for Australia’s consumer price index has strengthened the odds that the Reserve Bank of Australia will refrain from making an additional interest rate cut when it meets for its next rate decision on Tuesday. If the central bank does vote to keep the rate unchanged at 1.5%, the Pound Australian Dollar exchange rate could tumble.

Meanwhile the Pound could potentially slide ahead of the Bank of England’sown rate decision on Thursday as investors continue to speculate on the likelihood that the BoE will slash rates further.

The recent QE comments from Hammond have some analysts predicting that BoE Governor Mark Carney will seek to lower interest rates to help support the economy during the uncertainty caused by ‘Brexit’.

However the impressive UK GDP figures published could prove that interest rates cuts are unnecessary to the UK’s growth.

GBP AUD is likely to continue experiencing volatility over next week as markets make kneejerk reactions to potential ‘Brexit’ news. However, we may see the Pound Australian Dollar exchange rate ending the week relatively close to where it begins as negative ‘Brexit’ sentiment is balanced by the increasing pressure from the US Dollar on the ‘Aussie’.

AUD Exchange Rates to See Upside by Downside Risks Ahead

ABN AMRO's Roy Teo suggests that the Australian dollar will see "upside in the short term".

"It is likely that the AUD may retest the strong resistance zone of 0.7700-0.7750 in the coming days as a rate cut this year is not fully priced out."

"This could pave the way for further upside around 0.7835, a level we favour fading as a rate hike in the US this year is not fully priced in.

However, Roy suggests downside risks remain for the Aussie dollar:

"We acknowledge a material risk that the AUD/USD will be stronger than our 2016 year end forecast of 0.74."

"However make no mistake, further sustained strength in the AUD is likely to impact both exports and inflation outlook."

"We also maintain our view that the labor market is weaker than the RBA’s forecast. Hence wage growth is likely to remain subdued."

"Furthermore, the AUD is vulnerable to a slowdown in China’s property investment."

"Our base case scenario is that the RBA will keep the OCR at 1.5% well into 2017."

"However the risk that the RBA will resume its monetary easing bias next year, cutting the OCR by 50bp to 1.0% remains."