I am sticking with very long term charts for the Sterling – Australian Dollar exchange rate because we are into uncharted territory on anything shorter term.
As you can see from the chart (Click for larger version), not since 1985 has the Australian Dollar been so strong against the Pound.
The reasons the Aussie Dollar is so strong are that the continuing success of the Chinese economy is boosting Australian raw material exports and investors around the globe are getting a little more adventurous and are buying into the 4.25% base rate in Australia.
The Australian economy’s is still doing rather well in comparison with Northern and Western hemisphere economies but tentative growth in America is fuelling the guarded investor confidence. T
he other side of this calculation is the paucity of positive UK data and the nervousness with which traders are eyeing the Pound because of Britain’s strong relationship with Europe.
Those selling Aussie Dollars are in great shape in being able to do so at an all-time low but Australian Dollar buyers are caught between not wanting to lose any more and hating the feeling of converting their money at these poor rates.
From here, we will either see the Pound fall back to the 1985 low of A$ 1.3597 or we may see a turnaround in the Aussie Dollar’s fortunes if Chinese growth slows, as the Chinese authorities profess that they would like it to do. If we do see a bounce, then in the early stages, anything around A$ 1.60 would be a good buy.
Many thanks to the folks over at halofinancial.com for providing this commentry.