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Currency Update, November 1st, 2022

The RBA meets today, the bank’s board is expected to raise the official cash rate by either a quarter or half a percentage point during Melbourne Cup Day, after raising it from 0.1 per cent to 2.6 per cent over six consecutive meetings this year.

In years gone past an increase in rates like this would have seen a spike and general move upwards for the AUD, however as the US has been raising rate more aggressively and market conditions have favoured some "flight to safety" the US has been so strong in 2022 that we have seen the AUD/USD exchange rate continue to fall and drop all the way to multi year lows at 0.6173 in early October.

In good news for importers, the rate slide has somewhat slowed for now and we have seen a brief recovery with rates today back around the 0.64c mark before today's announcement. We are coming up against a fairly strong level of resistance at 0.64c from just after COVID hit, and we will hope from an importers point of view that we see some sort of breakthrough and then retest of this area to assist the AUD move a little higher.

Last week seen both Australian inflation figures and retails sales come out very high which is again putting the pressure on the RBA to hike rates again to slow spending, as spending habits are pushing all of these figures higher, even after a big increase in the offical cash rate in recent months.

This week is set to be a busy week, where Central Banks will take centre stage. RBA is Tuesday, the FOMC early Thursday morning and the BoE meeting later that night, so with inflation the hot topic and most of these countries seeing multi year high figures, a lot of pressure is on the Central Banks to try and cool this. Many of the market participants have these priced in at this point, so careful scrutiny of the wording of their statements and future directions for the rates will be key and will see which way the currencies decide to move.

Over in the UK and the arrival of the new UK Prime Minister Rishi Sunak has given a sense of stability to the local financial markets after he announced the abandonment of the expansionary fiscal policy suggested by his predecessor Liz Truss. Those initial plans were met with widespread panic and a huge 15% drop within a week against the USD, however a recovery to a 6-week high back around $1.15 has seen a bit of relief for the GBP.

While the new administration is considering raising taxes in an effort to plug the fiscal deficit, markets remain cautious as the UK economy is already showing clear signs of a slowing at a time when price pressures continue to grow.

The GBP/AUD exchange rate is back hovering around $1.80 for the past few days, so again with both Central banks meeting this week, expect plenty of volatility around the comments and by the end of this week we should see movement across the major pairs.

As with so much volatility being in the markets, if rates are sitting in your favour, looking at securing rates over a longer period is always an option worth considering, reach out if any ideas around forward contracts appeal to you and allow you to take advantage of rates, or on the other hand protect profits from any wild swings.

Tuesday Morning Rates

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