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GBP to AUD Nears 6-Week High, as AU Building Permits Fall

Market CommentaryGBP to AUD Nears 6-Week High, as AU Building Permits Fall
GBP to AUD Nears 6-Week High, as AU Building Permits Fall
GBP to AUD.

If you intend to transfer money to Australia from the UK in the near future, it might interest you to know that the pound to Australian dollar interbank exchange rate has hit its highest in near 6 weeks today. To be specific, sterling has reached 1.8650 versus the Aussie dollar, its strongest since March 24th.

By contrast, back on April 17th, the pound was as weak as 1.8131 against the AU dollar. So the interbank exchange rate has since strengthened by +2.86%, or over +5 cents.

To put this into context for you, at today's near 6-week high interbank exchange rate, £250,000 in Australian dollars would be worth AU$466,250. By comparison, on April 17th, £250,000 would have been worth just AU$453,275. So that's an increase of +AU$12,975 in the last 2 weeks.

As a result, when you exchange pounds to Australian dollars, you might now get a notably higher total in your Australian dollar bank account, compared to a few weeks ago. This could potentially benefit you, if you plan to emigrate to Australia, or to buy a property Down Under, in 2019.

Two clear factors why sterling has neared this 6-week high versus the Australian dollar are, first, that Australia's building permits fell in March, while second, the Reserve Bank of Australia is being tipped to cut interest rates next week.

Let's take a more thorough look at these reasons why the pound to Australian dollar interbank exchange rate has strengthened, which could be useful for your money transfer.

Australian Building Permits Fall in March

The first partial explanation why the pound to Australian dollar interbank exchange rate has neared this 6-week high is because Australia's building permits fell in March, said official statistics this week, reported by News.com.au.

According to the Australian Bureau of Statistics (ABS) on Thursday, Australia's building permits fell by -15.5% in March compared to a month before. This is below financial markets' forecasts for a -14.0% drop. On a year-on-year basis, Australia's building permits declined by a large -27.3%.

In particular, there were fewer approvals of units and townhouses Down Under in March, while approvals of apartments fell by -30.6%. Australia's building permits are declining, as Australia's housing prices are dropping at the fastest rate since the financial crisis in most major cities, like Sydney, Melbourne or Canberra. This is cutting demand for new construction.

Principal Economist of Building and Construction at BIS Oxford Economics, Tim Hibbert, said of these downbeat figures that "Negative leads (are) still coming through from property prices, turnover rates, housing finance and land sales."

Meanwhile, the Chief Executive of the Property Council of Australia, Ken Morrison, said that "Housing construction is one of the big engines of the Australian economy, and these figures show the construction pipeline is drying up."

When Australia's building permits fall, this could slow down Australia's economic growth. In turn, this cuts demand for the Australian dollar among international money managers, thus weakening the value of AUD.

Reserve Bank of Australia Tipped to Cut Interest Rates Next Week

In addition, a further reason why sterling has neared this 6-week high versus the Australian dollar is because Australia's central bank, the Reserve Bank of Australia (RBA), is being tipped to cut interest rates as soon as next week, at its meeting on Tuesday 7th May.

In particular, money markets now reckon that there's a 50% chance that the RBA will slash interest rates by -0.25%, to 1.5%. This probability is up from a 40% chance last week. If the RBA cuts, it would be the first reduction in Australia's interest rates since 2016, reports News.com.au.

The odds are rising that Australia's central bank will reduce borrowing costs next week, because Australia's economic data continues to disappoint. In particular, Australia's building permits have fallen, as we've seen above, while Australia's inflation and consumer confidence figures have also come in below expectations recently.

The Head of Investment Strategy and Economics and Chief Economist at AMP Capital, Dr. Shane Oliver, says that they’ve "pencilled" in a -0.25% cut in Australia's interest rates next Tuesday. Dr. Oliver notes that, though Australia's forthcoming federal election might convince the Reserve Bank to keep interest rates steady for now, "the case to go now is that inflation has come in lower than expected and is going the wrong way."

When the Reserve Bank of Australia cut interest rates, this makes taking out loans cheaper for businesses and households. In turn, this helps stimulate Australia's economy. However, lower interest rates making investing in Australian assets less profitable, which cuts demand for the Australian dollar. So, bets that the RBA will cut next week have contributed to weaken the Australian dollar.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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