Foreign Currency Market Update – GBP / AUD Update
The Pound sprang to its strongest level against the Australian Dollar for 5 ½ years last Thursday following the publication of a weaker than anticipated set of Australian unemployment data. The numbers revealed an unexpected jump in the overall level of joblessness in the Land Down Under from 6.1% in December to 6.4% last month. The job creation element of the figures also disappointed and the Aussie gave up ground across the board as a result, sending GBP AUD up through the two to one threshold for the first time since August 2009.
The dire jobs data fuelled investors’ expectations regarding the chances of another interest rate cut from the Reserve Bank of Australia (RBA) next month, following January’s decision to loosen policy. However, in spite of the downbeat labour market numbers, a March RBA cut is a long way from being a done deal just yet. The pronounced turnaround in global commodity prices from the end of last month has seen the wholesale price of iron ore – a key Australian export – steadily rise. The development brings a double bonus for the Australian Dollar; firstly, it increases the nation’s export earnings and secondly, it fuels the inflation expectations of Australian economic participants, giving the RBA less leeway to countenance further rate cuts.
Last Thursday saw the release of data which reinforced this second factor – the official statistics pointed to an upward revision by Aussies to their thoughts on the future pace of domestic price rises, hinting that the RBA’s hands may indeed be tied on policy tightening. If these twin influences elicit fresh support for the Aussie, then GBP AUD may retrace back down towards its monthly low of 1.9194.
Elsewhere, geo-political events continue to pose a threat to the risk-driven Aussie. Last week saw French and German leaders broker an uneasy truce between Moscow and Kiev to temporarily halt violence between warring factions in the Eastern part of Ukraine. Independent monitors have confirmed that the cessation of hostilities is ‘generally holding’, but comments from Ukrainian President Poroshenko shortly after the agreement was reached suggested that he holds out little hope that the peace will persist. Evidence of a fresh flare-up in the level of violence in the Eastern extremities of Ukraine could sap investor sentiment, causing GBP AUD to spike back above the two to one threshold once more.
Meanwhile, last Wednesday’s eurogroup summit, which saw the EU’s finance ministers hear plans for a large-scale debt re-jig from Greece’s new leadership, failed to yield a definitive conclusion. The two parties will reconvene today and most analysts expect an announcement of an agreement on loosening the current Greek bail-out terms to allow the Hellenic state to avoid an all-out debt default. Such an outcome would see appetite for risk flood back into the global markets and would be likely to trigger a fresh bout of support for the Aussie.
Heads Up
Summary of major upcoming data releases that we think may move the market.