Foreign Currency Market Update – GBP / AUD Update
Investors holding Australian Dollar denominated assets breathed a collective sigh of relief when the Reserve Bank of Australia (RBA) made its latest monetary policy announcement in the early hours of last Tuesday morning. More than one leading investment bank had been predicting that the RBA would once again opt to trim its official cash rate following February’s 25 basis points cut, reasoning that the Antipodean central bank rarely makes one-off policy adjustments, but tends to cut twice in quick succession. This month’s ‘no change’ decision was therefore supportive to the Australian unit.
However, this Aussie-positive news from the RBA was tempered by the commentary accompanying its rate announcement which left the door wide open to a further tightening of Australian monetary policy later in the year. The main factor restraining policymakers’ collective instinct to cut rates this month was the emergence of further recent evidence that domestic price rises are overheating in Australia’s major cities. Nonetheless, the financial markets are still pricing-in a plunge to 1.75% for Australian interest rates during Q4 2015. If the RBA does nudge its cash rate lower throughout the remainder of the year, then look for the GBP AUD exchange rate to edge back up towards last month’s multi-year high of 2.0032.
In the meantime, the Aussie has continued to recover from its February lurch lower against Sterling over the past seven days. The Pound dropped to its weakest level against the Aussie since the first week of February on Friday afternoon, with GBP AUD sliding to as low as 1.9360 in the aftermath of the publication of February’s US labour market data. The keynote American release revealed that over 200,000 jobs had been created in the combined non-agricultural sectors of the world’s premier economy for the twelfth month on the trot last month. The total number of positions generated was in fact close to 300,000 and the attendant dip in the overall level of US joblessness from 5.7% to 5.5% added to the go-ahead mood in the markets which favoured the risk-driven Aussie. If the downside shift for GBP AUD continues into this week, then expect the low of 1.8921, which the pair traded down to at the end of January, to come into play.
Looking ahead, Thursday’s domestic employment numbers provide the centrepiece of the Australian data roster this week. Another disappointing showing could force the RBA’s hand with regard a rate cut at its next meeting in April.
Heads Up
Summary of major upcoming data releases that we think may move the market.