Foreign Currency Market Update – GBP / AUD Update
The Sterling Australian Dollar exchange rate has started 2015 firmly on the back foot. The pair edged downwards to its lowest level in three weeks during late trading on Friday as investors priced-in a possible broadening of its Quantitative Easing programme from the European Central Bank (ECB).
The change in market sentiment, which favoured the risk-driven Australian Dollar, followed comments from ECB Chief Mario Draghi in an interview with German financial broadsheet Handelsblatt, published on Friday. The ECB supremo asserted that, ‘the risk that we do not fulfill our mandate of price stability is higher than six months ago,’ which analysts took as a heavy hint that the euroland central bank will be expanding its current asset purchase scheme to include the bulk-buying of sovereign debt.
Such a move would signal the beginning of an all-out QE programme from the ECB similar to those perused by the Bank of England and the US Federal Reserve during the years following the 2007⁄08 credit crisis. If, as expected, Wednesday’s official data shows that the eurozone economy saw negative inflation last month, then market rumours regarding the announcement of all-out QE for the region at the ECB’s next policy meeting on 22nd January will increase. This development would bring renewed gains for the Aussie against Sterling. If GBP AUD does start trending downwards once more, then the pair’s 16-week low of 1.7858 may rapidly become a near-term target.
Meanwhile, Friday’s session had proved to be a poor one all round for Sterling; the UK unit shipped support against all of the other sixteen most-actively traded global currencies following the publication of a disappointing December survey of the domestic manufacturing sector. However, the impression persists that the British economy is in ruder health than that of its near neighbours, so the factory output data may prove to have a one-off negative effect on the Pound.
Although no alteration to interest rates is anticipated from the Bank of England at this Thursday’s MPC meeting, most market participants still anticipate that the BoE will tighten its policy sooner than most other major central banks, so a renewed bout of support for Sterling cannot be ruled out in the medium term. If GBP AUD does track Northwards once more, then expect the pair to encounter firm resistance at last month’s five and a quarter year high of 1.9309.
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