Foreign Currency Market Update – GBP / AUD Update
The Pound Sterling Australian Dollar exchange rate struck its highest level since Christmas Day during the latter part of yesterday’s European session as global investors shifted out of risk-laden assets including the Aussie. The move was driven by market participants’ concerns regarding the increasingly febrile situation in the eurozone following the staunchly anti-austerity Syriza party’s landslide victory in Greece’s election last Sunday.
Syriza narrowly missed winning an outright victory in the Greek parliament, but were quickly able to cobble together a working majority by joining forces with the far smaller centre-right Independent Greek party, which shares its deep-seated suspicion of the ‘European Project’. Comments from German government spokesman Steffan Siebert, who counselled the new Athens administration yesterday that it should honour its, ‘prior commitments and that the new government be tied in to the reform’s achievements,’ made the Teutonic powerhouse’s position clear. The warning triggered a bout of risk aversion which hit the Aussie hard, propelling GBP AUD Northwards.
Last week’s session in the markets brought a generalised move towards looser monetary policy from several of the world’s premier central banks; the Bank of Canada surprised investors last Wednesday by trimming its key lending rate by 25 basis points, while the latest Bank of England minutes, published earlier the same day, revealed that for the first time since last Summer all nine members of the Old Lady of Threadneedle Street’s policy committee had voted for Base Rate to be kept on hold. The Reserve Bank of Australia (RBA) has floated the prospect of an interest rate reduction during recent months, so the apparent move towards policy easing across the globe, alongside the continuing fall in oil prices, may force it to cut. Any suggestion from the RBA that it is set to begin eroding Australia’s yield advantage would hit the Aussie hard, potentially sending GBP AUD up to a fresh multi-year high above last month’s 1.9309.
However, last week also brought the announcement from the European Central Bank that it was launching a €1 trillion+ Quantitative Easing scheme. The development brought some initial support for the risk-sensitive Aussie on Thursday, sending GBP AUD briefly down below the 1.8600 level before events in Greece intervened. If this large-scale programme begins to elicit a sustained pickup in the level of global risk appetite during coming weeks, then expect the Australian unit to hoover up fresh support. Last week’s low of 1.8343 will provide an initial target in such a circumstance.
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Summary of major upcoming data releases that we think may move the market.