Australian Dollar weakens by 2 percent against Sterling after interest rate change

4 February, 2015

Tom Arnold

Over the last couple of weeks we have seen some quite unprecedented moves on the currency markets with the Euro being the main protagonist. The Swiss cap removal, the ECB QE program and the Greek election have caused a massive amount of Euro weakness, and this has provided a wonderful opportunity for those buying Euros to achieve the best rates for 7+ years.

Things seem to be changing now though. When such a sudden move happens in the currency markets, there is often a correction shortly afterwards as the markets come to the realisation that they over reacted. This seems to be the case now, and while still very weak, the Euro has started to claw back some of its loses against most other currencies. This has been aided to some degree by some positive data yesterday from Europe and the hope that the Greeks are entering into negotiations with their EU partners to constructively try and find a solution to their debt problems.

The Greek situation remains balanced on a knife edge though, with these negotiations happening, while reports also surface that the Greeks might start to borrow money from Russia and China to aid their situation. This would obviously cause massive problems within the EU, as there would be no control, and this would likely push the Greeks towards a Euro, if not an actual EU exit. Whether an exit for Greece is a good or bad thing for the Euro is also not clear – break up of the bloc or a strengthening as a weak member is culled – who knows? One thing we do know is the Euro might struggle to fight back too much with all of this uncertainty, but it is starting to make some gains, so watch this space…

Today sees quite a bit of data due out, with various PMI figures released for Europe, the UK and the US, together with European retail sales and US mortgage and employment numbers. This is all happening with the backdrop of the continued meetings between the big players in the Greek situation, so it is likely to be another volatile day.

Two other things to discuss…

If your currency requirement is Antipodean in nature, then there have been some interesting developments in the last day or so – yesterday saw the Australian’s decide to lower their interest rate and this morning the RBNZ governor gave a speech saying that they would hold rates for the foreseeable, but that the Kiwi Dollar’s current weakness was not justified. The Australian interest rate move has caused a sharp drop in the Aussie Dollar’s value, and the Kiwi governors speech has caused a slight strengthening. So things are on the move on the other side of the world too. Rates are still very good though – the best for buying AUD in a few years and for buying NZD for a good few months…

The last thing is not really a footnote rather a word of warning. In the last few days a number of industry leaders have come forward and announced that the prospect of a Labour government or Labour led coalition would be bad for the UK economy. The boss of Boots for example described the possibility of Ed Miliband becoming Prime Minister and implementing Labour economic policies as a “catastrophe”. Labour have fought back making personal attacks on the man in question’s tax status and the whole thing has become a little unsavoury. But what this shows is clear – industry does not back a Labour government and with the poles incredibly close, and the prospect of Labour and the SNP maybe getting the opportunity to form a coalition in a few months time, the Pound could be in for a massive slide in strength.

Rates are still very good for buying most things if you have Pounds in your pocket, and with the general election really just around the corner, make sure you speak to your CI account manager about you upcoming requirement to find out how you can secure your rate while the rates are high.