Foreign Currency Market Update – GBP / AUD Update
The Australian Dollar slumped to its weakest level against the Pound since the Autumn of 2009 during last Friday’s trading session. The move sent GBP AUD briefly up through the 1.9500 threshold for the first time for well over five years as investors’ expectations regarding global monetary policy and fears over the ‘Greek Problem’ saw market participants shift out of Aussie-denominated assets.
The four trading weeks since the turn of the year have brought a sea change in expectations regarding the next step for world interest rates. The Bank of Canada’s unanticipated interest rate cut of last month, combined with last week’s change in tone, from a hawkish to a distinctly neutral ‘wait and see’ policy stance from the Reserve Bank of New Zealand, suggest that 2015 may bring a renewed round of rate cuts from the central banks of commodity-driven economies.
Last Wednesday’s inflation statistics, which revealed a sharp drop-off in the rate of Australian price rises from 2.3% during Q3 2014 to a relatively lowly 1.7% during the final three months of last year, would appear to open the door for a pre-emptive rate cut from the Reserve Bank of Australia (RBA) during the early hours of tomorrow morning. The consensus opinion amongst analysts is that the RBA will maintain its key lending rate at its current level of 2.50%. This set-up means that a surprise trimming of RBA rates would send GBP AUD sharply higher, with the two to one threshold, where GBP AUD encountered some technical support on its way lower during the middle part of 2009, providing a realistic short-term target.
Meanwhile, last week’s session brought the beginning of what is likely to be a prolonged round of horse-trading between Greece’s new radical leadership and the eurozone’s policymakers. Reports suggest that Thursday’s meeting between new Greek Finance Minister Yanis Varoufakis and eurogroup Finance Chief Jeroen Dijsselbloem did not go at all well, with the Hellenic hard-liner vowing to shun any communication with officials from the EU / IMF /ECB ‘Troika’ which previously provided his debt-addled Hellenic state with a €240bn bailout lifeline.
This Greek drama has the potential to play out for months to come; in the near-term it will likely sap investor sentiment and hold back the risk-driven Aussie as the 28th February, which brings the end of Greece’s current loan programme, draws nearer. On a more positive note, the European Central Bank’s unprecedented €1.14 trillion Quantitative Easing programme commences next month, and ceteris paribus, this should favour the Australian unit. If the prospect of a fresh new pool of ‘easy money’ sloshing round the global financial system does indeed trigger a renaissance for the Aussie, then look for GBP AUD to peel back down towards its 2015 low of 1.8343.
Heads Up
Summary of major upcoming data releases that we think may move the market.