Foreign Currency Exchange

As was strongly expected the RBA cut the benchmark interest rate by 0.25% to 7 % last week. Investors reacted quickly to the rate decrease and continued to unwind their leveraged carry trades, bringing more pressure to the AUD.

Although the outlook for demand and inflation remains uncertain, given robust terms of trade, strong investment spending and rising commodity prices in the last year, it’s not all bad news for the AUD and in the long run RBA expects inflation to fall below 3%.

The fall out in the UK is much more severe and its service, rather than resource, based economy, is more dependent on global and US growth outlooks.

We expect the AUD to remain under pressure in the short to medium term; however it should start to strengthen against GBP given the expected rate cuts by the BOE over the next year.