Australian Dollar Conversion Rates - GBP/AUD Exchange Rate Softens; Pound Sterling Suffers Scottish Referendum Uncertainty

September 7, 2014 - Written by Frank Davies

STORY LINK Australian Dollar Conversion Rates - GBP/AUD Exchange Rate Softens; Pound Sterling Suffers Scottish Referendum Uncertainty

The Pound to Australian Dollar exchange rate (GBP/AUD) traded lower at the tail end of last week as the Aussie currency remained popular in the currency market.

The Australian Dollar (AUD) climbed impressively against the Euro (EUR), Pound Sterling (GBP), Canadian Dollar (CAD) and New Zealand Dollar (NZD) conversion rates yesterday following the European Central Bank’s (ECB) decision to hack interest rates further, taking them to a new low of 0.05%.

Here's a snapshot of the latest AUS conversion rates within the forex markets today:

- The pound to australian dollar exchange rate is +0.06 per cent higher at 1.73587.
- The euro to australian dollar exchange rate is -0.08 per cent lower at 1.38858.
- The dollar to australian dollar conversion rate is -0.03 per cent lower at 1.07763.
- The australian dollar to euro exchange rate is +0.08 per cent higher at 0.72016.
- The australian dollar to pound exchange rate is -0.06 per cent lower at 0.57608.
- The australian dollar to us dollar conversion rate is +0.03 per cent higher at 0.92797.

In response the ‘Aussie’ gathered momentum, reaching highs against the mighty US Dollar (USD) of beyond 0.9390 US cents. Strategist Gregg Gibbs commented: ‘At the moment risk premiums have been squeezed to very low levels by extreme central bank policy measures abroad. This is driving up every currency with some yield and a half decent external balance.’ The Pound however has gotten soft as the debate heats up over Scottish independence and the currency an independent Scotland would use.

Australian Dollar Remains a Popular Favourite against Other Majors

The ‘Aussie’ seems nearly immune to any shifts in the price of commodities such as iron ore which makes up Australia’s biggest export product. The price of iron ore has fallen in 2014 by an approximate 15% in the first two quarters. Forex expert Daniel Been commented: ‘The Australian Dollar has not traded with commodity prices for most of this year.’

The Reserve Bank of Australia (RBA) chose to keep their interest rate at 2.50% this week, where it has remained since last August. RBA Governor Glenn Stevens stated: ‘Long-term interest rates and risk spreads remain very low. Volatility in many financial prices is currently unusually low. Markets appear to be attaching a very low probability to any rise in global interest rates or other adverse event over the period ahead.’

Scottish Independence Vote Keeps Pound Trading Lower

Conversely the Pound has experienced a disappointing week after the Bank of England continued its vote for low interest rates again for the 66th consecutive month. Moreover, the vote for Scottish independence is currently shrouding Sterling as speculation continues as to the outcome of the referendum. With Scotland voting on a break away from the UK, the question remains, if Scotland leaves the UK, will they keep using the Pound? If so, are they still independent? Moreover, if they apply for a place within the Eurozone does that defy the independence vote too?

Whilst these questions are debated by politicians Sterling is trading lower as a result of the uncertainty. One poignant question however, and one that could affect the Pound significantly is what happens to the Pound if Scotland leaves the UK? Whilst there’s speculation of keeping Sterling in Scotland as part of a formal currency union, others speculate that the possibility of sterlingisation is high whereby the Pound would be used without a formal currency union. Another option considered would be for Scotland to join the EU, however, with no central bank Scotland isn’t likely to be eligible. Furthermore, with the Eurozone recovery flailing, is joining the EU really a financially viable option for Scotland?

Think-tank Adam Smith Institute stated: ‘Under sterlingisation, Scotland would lack the ability to print money and establish a central bank to act as a lender of last resort. Evidence from dollarised Latin American countries suggests that far from being problematic, this constraint reduces moral hazard within the financial system and forces banks to be prudent, significantly improving the overall quality of the country’s financial institutions. Panama for example, has the seventh soundest banks in the world.’

The fourth option for Scotland would be to create a new currency, which is speculated as being the most volatile option. Until The Scottish Referendum takes place on the 18th September the Pound is likely to remain highly volatile. The GBP to AUD exchange rate may favour the ‘Aussie’ for some time until Sterling is able to gain stability.

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