Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast 2014

Modified: Monday, 23 December 2013 16:16 BST - Written by Minesh Chaudhari

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast 2014

The Pound Australian Dollar exchange rate (GBP/AUD) has put in a stellar performance since dropping to a multi-decade low of 14381 in the middle part of March. The surge forward for the pair since then, which has seen GBP AUD record gains of some 40c, has been driven by investors’ thoughts regarding the likely future direction of Australia’s monetary policy and the continued downward drift in global commodity prices.

The Reserve Bank of Australia cut its leading interest rate to a record low of 2.50% back at the start of August and given the tone of the rhetoric from RBA Governor Glenn Stevens during the intervening period, further cuts look likely in the first two quarters of next year. Add to this recent suggestions from Stevens suggesting that Australia’s exporters require a weaker Aussie and the fact that he stated last month that his bank might be prepared to actively weaken the Australian unit in the market, the outlook is negative for the Aussie. If the uptrend persists for GBP AUD, then the next significant target moving northwards comes at July 2009’s peak of 2.0977.

However, Australian monetary policy on its own is unlikely to achieve such a move – what GBP AUD needs in order to maintain the forward momentum which it has enjoyed since Eater is a continued move lower for global commodity prices. The Aussie economy remains heavily dependent on a strong performance for the prices fetched for the raw materials which it extracts and produces in global markets. For the past two years, asset prices have drifted lower, hitting the Australian economy hard. If the downward move in metals prices continues, then the selling pressure on the Aussie is likely to accelerate and trading rates post the two to one threshold would be likely for GBP AUD. With the corner having been well and truly turned for commodities according to the MSCI Commodities Index, trading rates above two to one may become a reality sooner rather than later for GBP AUD.

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