Foreign Currency Market Update – GBP / AUD Update
The Pound Sterling Australian Dollar exchange rate has spent the past seven days holding below the multiyear high of 2.0032 which it had briefly touched-off during mid-February. The early part of last week had seen investors shift out of riskier assets as levels of nervousness over Greece’s tentative bail-out loan extension grew. The debt-riddled Hellenic state gained permission in principal from the eurogroup of Finance Ministers ten days ago for a four month lengthening of the emergency line of credit which it had previously received from the EU / ECB / IMF ‘Troika’. However, this extension was contingent upon Athens’ new policymakers presenting a package of economic reforms to its creditors – the deadline for the submission of this document was a week ago today and investors’ nerves began to fray as the allotted hour passed without any Greek submission.
The GBP AUD spiked to as high as 1.9952 early on Tuesday as market participants feared the worse regarding Greece’s debt deal, but when the eurogroup announced later the same day that they were willing to accept the proposals from Athens, appetite for risk came flooding back and the Aussie made a concerted comeback against Sterling. The extension to Greece’s debt financing does not mean that the prospect of a disorderly breakup of the eurozone has completely evaporated, but rather that it has been pushed into the middle distance. Expect a re-run of the ‘will they/ won’t they’ Greek exit story in the middle part of this Summer.
Elsewhere, official figures published in the US on Friday afternoon revealed that the slowdown in economic activity Stateside at the end of last year had been more pronounced than had previously been thought. The statistics revealed that the annualised pace of economic growth in America stood at 2.2% during the three months to the end of December – a significant downward revision to initial estimates of 2.6%. The prospect of a wobble for the world’s leading economy came as a blow to the export-driven Aussie. Similarly, midweek economic data which suggested that the pace of core US price rises in on the increase once more, suggesting that the Federal Reserve may now have the capacity to increase US interest rates sooner rather than later, also hampered the Aussie’s progress.
Looking ahead, a potentially game-changing week lies in store for investors holding the Aussie. The main event, as far as they are concerned, comes overnight tonight in the form of the Reserve Bank of Australia’s latest monetary policy announcement. Analysts are split on the likely outcome of this key risk event; policymakers from the RBA have suggested with some regularity during recent weeks that a further loosening of monetary policy may be required in the near-term. However, the marked increase in global commodity prices since the end of January has given Australia’s policymakers less leeway to countenance a rate cut. This set-up means that a trimming of rates will be likely to send GBP AUD back up through the two to one threshold, while a no-change decision will see the pair peel back towards the 1.9425 level which it hit during the second week of last month.
Heads Up
Summary of major upcoming data releases that we think may move the market.