Australian Dollar Exchange Rate Rockets On Interest Rate Expectations

Modified: Tuesday, 30 July 2013 20:23 BST - Written by John Cameron

STORY LINK Australian Dollar Exchange Rate Rockets On Interest Rate Expectations

The Australian Dollar has endured a torrid 24hrs in the global currency markets, sending the Pound to Australian Dollar exchange rate (currency : GBP AUD) up to its highest level in some 35 months at 1.6942 during the overnight session. The move out of Aussie-denominated assets was partly driven by escalating fears that the Asian market for Australian imports is shrinking thanks to a poor set of Japanese Industrial Output and Household Spending figures which both came out at a significantly weaker level than analysts had been anticipating.

The poor numbers from Japan hurt the commodity-dependent Australian Dollar, but it was a series of comments from Reserve Bank of Australia Governor Glenn Stevens which really stuck the knife into the Australian tender. Stevens stated during a speech last night that ‘recent inflation data do not appear to have shifted’ his Bank’s assessment that further easing of monetary policy may be an option as we head towards year end.

The Reserve Bank of Australia’s next board meeting is close at hand – it takes place next week. Before Steven’s words, futures markets were pricing in a 76% likelihood that the RBA will trim interest rates next week. Stevens’ words have sent this figure up to almost 90%, meaning that it will come as a major surprise if a cut does not take place. However, with this set-up in place, a ‘wait and see’ decision from the RBA next week will see the Australian tender come in for some sustained support. Such an outcome would send the GBP AUD exchange rate tumbling towards the 1.6000 threshold once more.

Elsewhere, this morning’s Spanish GDP data for Q2 came out slightly ‘less bad’ than analysts had been anticipating, printing at -1.7% versus expectations of a -1.8% showing. The euro has gained ground against Sterling as a consequence, sending the Pound to euro exchange rate down to as low as 1.1514 during the early part of today’s European trading session.

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