Foreign Currency Market Update – GBP / AUD Update
Market expectations regarding the likely policy directions of the US Federal Reserve and the European Central Bank (ECB) have weighed on the GBP AUD exchange rate during the past seven days. The pair had briefly changed hands at above the psychologically significant 1.9000 level during Monday’s session, but steadily fell throughout the week to close for the weekend at 1.8483.
Wednesday proved to be particularly positive day for investors holding Aussie-denominated assets, with the Fed confirming that it had no intention of hiking its key interest rate until at least April. Meanwhile, on the other side of the Atlantic, news emerged that members of the ECB’s Governing Council had heard proposals for a targeted €500bn full scale Quantitative Easing programme during a get-together on the same day. Reports suggest that the tentative scheme, which would involve the bulk-buying of euroland sovereign debt, may have a chance of gaining the approval of doubtful German policymakers thanks to the fact that only investment grade bonds, and not those of peripheral states, would be purchased. The ECB will announce its latest policy decision on 22nd January and if the outcome is full-tilt QE, then look for the risk-fuelled Aussie to benefit.
Elsewhere, Friday’s US labour market figures proved to be the perfect cocktail for the Australian tender, revealing an unexpected fall in the overall level of joblessness in the States during December, combined with another strong month for job creation and weak domestic wage growth. The numbers left investors with the impression that the US economic recovery continues to gain traction, but that the lack of an accompanying improvement in living standards means the Fed’s ‘easy money’ policy may continue into the medium term. The Aussie climbed in the aftermath of the keynote data and any further improvement could send the GBP AUD exchange rate down to as low as 1.7858 – a level the pair last visited in mid-November.
Looking ahead, Wednesday night’s Australian jobs numbers provide the highlight for Aussie-watchers this week. If the figures hint that the ongoing paring of commodity prices is hurting the nation’s real economy, then AUD could give up a decent portion of the gains which it has recorded against Sterling since the turn of the year. If the pair turns itself around and tracks North once more, then its January 2nd high of 1.9140 will become a target.
Heads Up
Summary of major upcoming data releases that we think may move the market.