Foreign Currency Exchange

Like last week, a lack of major domestic data meant that the value of the Aussie was influenced by events worldwide including US Dollar movement, risk aversion and commodities prices. Swings in the US Dollar meant that as we saw strength in the Greenback early in the week. We also saw an unwinding of carry trades but as the USD gave up gains later in the week the Aussie started to climb again. The AUD managed to recover some of its losses due to a rebound in global stock markets and with the rise in prices of gold and base metals, gained nearly 2% against the flailing pound by the end of last week.

Market participants will be watching the rate decisions due from the RBA and BoE due on Tuesday and Thursday respectively. Markets are now pricing in an almost certain 0.25% cut from the RBA but with the Pound suffering heavy losses last week across the board, an already Bearish sentiment to Sterling looks like it could go further. We expect the BoE to hold rates again this month and for the next quarter at least before beginning another cycle of monetary easing and with more rate cuts to come from Australia we expect to see the Sterling-Aussie cross remaining range bound for the short term. We do however expect to see the Aussie making gains against the pound in the long run as we start to see rate cuts from the UK and markets look out for the looming recession.