Foreign Currency Market Update – GBP / AUD Update
The Pound had shown tentative signs of a mini-recovery against the Aussie during the early part of last week, sending GBP AUD up to close to the 1.8800 threshold. However, Tuesday’s downbeat UK inflation numbers, which revealed that the annualised pace of domestic price rises had slumped from 1.0% in November to a joint record low of 0.5% last month, served to subdue Sterling. With the price of a barrel of crude oil continuing to plunge, the data well and truly takes the pressure off the Bank of England (BoE) to countenance an interest rate hike any time soon. Investors will learn more about the BoE’s intentions when the minutes of its latest policy meeting are published on Wednesday morning. Two of the nine-man committee have consistently voted to raise base rate during recent months; if either or both of these changed their mind this month, then the Pound could incur further losses against the Aussie.
Tomorrow night’s Chinese Q3 Gross Domestic Product data is also likely to have an effect on GBP AUD. Analysts are forecasting only a slight drop in activity levels of the world’s second largest economy in comparison with Q2. However, recent surveys of key sectors of China’s economy hint that all is not well and that policymakers are struggling to achieve their aim of achieving a more balanced financial system. If the Q3 GDP numbers disappoint, then GBP AUD could stage a turnaround and head Northwards towards last week’s peak of 1.8787 once more.
The main event this week comes on Thursday with the latest European Central Bank (ECB) policy announcement. Commentators took last Thursday’s scrapping of the 1.2000 minimum floor on EUR CHF by the Swiss National Bank as a heavy hint that the ECB will be introducing fully-blown QE, involving the bulk purchasing of euroland sovereign debt, later this week. Analysts are anticipating that the ECB will be committing around €500bn to such a scheme – if they avoid QE, or decide on a smaller scale programme, then the risk-sensitive Australian Dollar will weaken. However, a more likely outcome would see the ECB announce all-out QE and the Australian unit would enjoy a strong bout of support. GBP AUD would be likely to track lower towards its key interim floor of 1.7858 in such a situation.
Heads Up
Summary of major upcoming data releases that we think may move the market.