Posted by Oliver Meredew on October 27th, 2016.
If you’ve been thinking about selling your Australian property it’s worth bearing in mind that the Pound to Australian exchange rate has seen extreme volatility in the last 12 months.
GBP/AUD fell dramatically in response to the UK’s decision to Brexit back in June, and further losses drove the pairing beyond a 3-year low to 1.58. The Australian Dollar to Pound exchange rate, meanwhile, has jumped from 0.49 at the beginning of 2016 to 0.63.
All this movement means that anyone planning to sell an Australian property and transfer their funds to the UK would get considerably more Pounds for their Aussie Dollars than they would have pre-Brexit.
However, if you aren’t quite ready to sell your Australian property it’s well worth looking ahead and seeing what future issues could drive AUD/GBP higher still – making your Australian property sale more lucrative.
In the months ahead there are a number of big events with the potential to leave the Australian Dollar in an even stronger position against the Pound.
However, a general issue to be aware of is how shifts in the price of commodities can impact Australian Dollar exchange rates.
Australia is a key global exporter of gold, copper and iron ore. When the price of these resources rises, the Australian Dollar often appreciates in tandem. A commodity price rally (where one of Australia’s main commodities records a run of price gains) could strengthen AUD against currencies like the Pound and US Dollar. Conversely, dropping prices are likely to undermine demand for the Australian Dollar.
News from one of Australia’s main trading partners, China, can also have a significant impact on Australian Dollar exchange rates.
When China’s economy shows signs of growth or stability, the Australian Dollar tends to appreciate as it indicates that Chinese demand for Australian exports will remain high – a state of affairs which is supportive of the Australian economy.
Chinese developments can also prove a drag on the ‘Aussie’, with signs of weakness in the Asian superpower dimming both Australia’s economic outlook and demand for the nation’s currency.
While higher commodity prices and perceived stability in China lent the Australian Dollar support in the tail end of 2016, the Australian Dollar still faces negative headwinds from the Reserve Bank of Australia (RBA). Any indications from the RBA that interest rates are likely to be cut have the potential to send the ‘Aussie’ reeling – and might give the Pound a chance to recover from multi-year lows.
While central banks have been introducing rate cuts since the 2008 global economic crash in order to stabilise their respective economies, rate cuts usually trigger major currency devaluations; this was seen for the Pound in September when the Bank of England (BoE) cut UK interest rates in the wake of the ‘Brexit’ vote.
When it comes to future BoE decisions, economists have been on the fence about how the central bank will act given that key UK business sectors seemed to be performing more strongly than anticipated after the referendum.
That being said, another Pound-damaging (and Australian Dollar-supporting) interest rate cut is expected to take place in the near future, and it’s possible that the Australian Dollar to Pound exchange rate could hit new multi-year highs if such a rate cut takes place.
Staying with the UK, there’s another big reason why the Pound may well drop to historic lows at the start of 2017, making selling an Australian property even more advantageous if you intend to transfer the funds over to the UK.
The event in question will be the triggering of Article 50, which is the step required to start the UK’s official withdrawal from the EU. When Prime Minister Theresa May announced that Article 50 would be activated in the first quarter of 2017 the Pound plummeted, and the currency is expected to slide again when the event takes place.
Generally speaking, most analysts see the long-term outlook of the GBP AUD exchange rate as being neutral negative – meaning the Pound is more likely to decline further against the Australian Dollar than recover existing losses.
If you aren’t in a rush to sell your Australian property and want to wait and see whether the Pound continues weakening against the Australian Dollar, you may want to sign up to receive regular market updates. By following the latest currency news you increase your chances of picking the most cost-effective time of transferring the funds from the sale of your property back to the UK.
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