Foreign Currency Market Update – GBP / AUD Update
The Australian Dollar received a much-needed boost late on Friday when it was announced that the euroland’s Finance Ministers had agreed in principal to a 4-month extension to Greece’s existing financial rescue package. The Hellenic state’s new Syriza-led coalition government had requested an additional 6-months’ worth of funding during the middle part of last week, but this suggestion was rapidly dismissed, with an official German spokesman deeming it, ‘not a substantial proposal for a solution’. The GBP AUD exchange rate pushed on through the 1.9900 threshold in the 48hrs which followed these comments as investors shunned risk-driven assets including the Aussie.
Meanwhile, in the background, the ongoing negotiations between the debt-ridden Hellenic state and the eurogroup were making rapid progress, yielding the positive announcement on Friday evening. Greece’s new Prime Minister Alexis Tspiras described his government as having, ‘won a battle, not the war’, when he spoke on Saturday and most commentators view the situation as a climb down by the men from Brussels. Either way, the news that Greece is likely to avoid an impending bankruptcy provided the Aussie with a push in the right direction, sending the GBP AUD exchange rate down to its lowest level for ten days at 1.9571 just before Friday’s market shutdown.
It should be noted that the bailout extension has not been officially ratified just yet – the policymakers from Athens must present their nation’s creditors with a comprehensive list of economic and structural reforms which will accompany the lengthening of its line of credit. If Greece’s backers agree to these terms, then the plan needs to be rubber-stamped by eurozone members tomorrow. Analysts expect that this will be a formality and it appears likely the news will strengthen risk appetite, sending GBP AUD lower as the week continues.
However, geo-political threats remain to investor sentiment, even if the Greek problem is temporarily resolved. Ukraine reached a ceasefire agreement with Moscow-backed separatist troops over a week ago. For a while, very little evidence emerged that either side was adhering to the treaty. However, the weekend news of a prisoner swap between Ukraine and the rebel fighters provided grounds for cautious optimism, as did the news that the Kiev administration had started withdrawing heavy weaponry within the past 24hrs, with the rebels promising to start the same process tomorrow.
Yesterday’s deadly bomb blast at a rally held in Ukraine’s second city to commemorate the first anniversary of the deposition of Ukraine’s erstwhile leader, the pro-Moscow Viktor Yanukovych, acted as a reminder that the distrust between the two sides runs deep. Any fresh escalation of the febrile situation in the Eastern part of Ukraine could see investors abandon risk, sending GBP AUD back up through the psychologically significant two to one level. A strong showing from Thursday’s UK GDP growth figures would elicit a similar effect.
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Summary of major upcoming data releases that we think may move the market.