The Aussie Dollar was stronger against a basket of major currencies last week and was mainly driven by a strong demand for carry trades, with the AUD remaining a favourite of investors with its high yield and strong economic outlook.

Surging commodity prices also helped underpin the Aussie and a government report showed that Australian export prices are expected to jump 40% over the next 18 months. News that China’s Baosteel have agreed to pay a whopping 96.5% more for iron ore, one of Australia’s largest exports, from Rio Tinto, helped support the AUD further.

The RBA meet tomorrow (Tues 1st July) and are expected to keep rates on hold at 7.25%. However, markets are now pricing in another 0.25% hike at some point in the next 12 months which is helping to support the antipodean currency. With the FED holding rates at 2% for now and statements from them sounding less hawkish than markets have been expecting, the Aussie is being further supported still with demand from carry trades against the USD.

We are expecting to see further Aussie strength against the Pound as the Australian economy looks to be in much better shape than that of the UK and with the possibility of a hike in interest rates in Australia we expect to see the GBP/AUD cross remain below 2.085, unless we see risk aversion from investors as a result of the global credit crunch.