The Australian dollar weakened significantly today after yesterday’s trading rate around 2.4400. We have seen the rate moved today by over a percent to a high of 2.4791, currently trading at 2.4645. This was down to The US dollar was weaker against major currencies caught up in the unwinding of carry trades as risk aversion again comes to the forefront lending support to the yen. This meant high yield currencies such as the Australian dollar are being sold off as a fresh wave of concern about the US economy sweeps through global markets. Investors had used the low-yielding yen as a cheap source of funds to buy higher-yielding currencies in the carry trade, but the market volatility and rising credit costs sparked by the US sub prime mortgage market woes has forced leveraged investors to unwind positions.
There are No data releases due today.
We expect a range today in the GB POUNDS/ AUSTRALIAN DOLLAR rate of 2.4530 to 2.4630
The Australian Dollar continued its resurgence in Asia yesterday as investors returned to the high yielding currencies. The current Australian interest rates are 6.5%.
AUSTRALIAN DOLLAR /JP YEN benefited from the Bank of Japan decision to keep interest rates on hold jumping from 94.50 to an overnight high of 96.00. It appears the Aussie dollar will continue to perform well heading into the weekend with more
US DOLLAR weakness expected. Despite the gains in the Pound in trading against the Greenback another rally on the Aussie sees the cross rate open lower this morning at 2.4450 with further downside pressure expected. This is down from yesterday’s highs well into 2.4600. The exchange rate today is expected to move down further between 2.4300 and 2.4400.
Investors continued to flee risky investments, with the yen continuing to gain while high-yielding currencies such as the Australian dollar and the pound suffered heavy losses. "Until calm returns to the market, then the era of the carry trade is no more; and even then ... appropriate conditions for its return are unlikely to be forthcoming for some time to come," said Neil Mellor at the Bank of New York.
As such, upward pressure on the yen is likely to persist for the time being, he said.
Carry trades are a very risky but until recently a very popular strategy where money is borrowed in low-yielding currencies such as the yen in order to invest in high-yielding assets elsewhere. The Australian and New Zealand dollars, as well as the pound, have all hit their lowest levels in around a year against the yen.
The sharp moves have prompted action by the Reserve Bank of Australia, which announced it had intervened to stem its currency's hefty losses. RBA governor Glenn Stevens said intervention was small and that the central bank is prepared to intervene "from time to time" if conditions are "disorderly".
Monday 13th August 2007 Interbank rate: GB POUNDS /AUSTRALIAN DOLLARS 2.3833
The Reserve Bank of Australia joined the rest of the world’s central banks on Friday injecting almost $5 billion Australian dollars into the banking system to ensure the global banking system remained liquid. This injection of unlimited cash by the worlds’ central banks seemed to calm markets in the US late Friday; however, it would very premature to say that the worst is over regarding this worldwide credit crunch.
Australian Dollar/ US Dollar: The Aussie dollar slipped over a cent from its opening price of 0.8502 to the 24hr low of 0.8399. The late recovery in the markets on Friday saw the AUD/USD rate bounce to0.8422. While the Aussie should continue to take direction from international equity movements, this morning’s release of the RBA statement on monetary policy should reaffirm that the Reserve Bank is looking to continue tightening interest rates as the official inflation rate hovers near the top end of the 2-3% range deemed suitable. Normally, this would indicate AUD strength as international institutions searching for higher yield purchase AUD; however, with current turmoil in the financial system it is unknown how much risk the institutions wish to take on.
GB POUND / AUSTRALIA DOLLAR:
Sterling opens unchanged from Friday’s opening price this morning despite dipping with equity markets on Friday evening. GBP/USD slipped to 2.0152 before recovering as central banks poured money into the banking system to prop up faltering equity markets. GBP/AU DOLLAR is currently trading at 2.3940 and 2.7101. An absence of UK data today should leave the pound reliant on the fortunes of global equity markets for direction.
Monday 6th August 2007 Interbank rate:
GB POUNDS /AUSTRALIAN DOLLARS 2.3889
The Great British Pound opened this morning slightly above 2.3900 in early sessions. We have since seen a drop back towards the 2.3850 level . The week ahead sees UK Industrial Production data released tonight followed by Wednesdays much anticipated BoE inflation report and Thursdays Trade balance. Sterling is expected to be strong in the market leading up to Wednesday’s big announcement, a key barometer on the inflation situation in the UK and how many times the BoE may have to increase the base rate by in the coming months. The gains in the Pound coupled with a drop in the Aussie sees the cross rate open higher this morning with early Sydney exchanges around 2.3880, up from Fridays Asian close of 2.3700.
We expect a range today in the GB POUND / AUSTRALIAN DOLLAR rate of 2.3820 to 2.3920.
Sterling opens slightly higher this morning as traders increased
speculation that interest rates in the UK will continue to rise. GB
POUND / AUSTRALIAN DOLLAR is continuing to weaken as a consequence of
volatile stock markets as investors pull away from high yielding
currencies like the Australian dollar (Australian interest rate is
currently at 6.25%) in favour of safer lower yielding currencies, such as US DOLLAR
denominated investments.
We expect a range today in the GB POUND /AU DOLLAR rate of 2.3800 to
2.3900. The current rate is holding above 2.3900.
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