Foreign Currency Market Update – GBP / AUD Update
The Pound Sterling Australian Dollar exchange rate slumped during the middle part of last week as investors moved to alter their expectations regarding the future path of Australian interest rates. GBP AUD had traded up to close to the 1.9900 threshold early on Wednesday, but was changing hands down in the 1.9200s during Friday trading following a pronounced move forward for the Aussie.
Wednesday evening’s Reserve Bank of New Zealand monetary policy announcement proved to be pivotal in the Australian unit’s near-term renaissance; although the Kiwi reserve bank did not alter its key interest rate, comments contained in the statement it released at the same time as the announcement inadvertently helped the Aussie. Australia and New Zealand’s economies are similar in many ways and the RBNZ and Reserve Bank of Australia’s monetary policies more often than not move in step, so the Kiwi central bank’s suggestion that its next interest rate move was as likely to be a hike as a cut favoured the Aussie.
The latest Australian jobs numbers, published during the early hours of Thursday morning, provided the local unit with further forward momentum. The data unexpectedly revealed the Antipodean nation’s overall unemployment rate had fallen to 6.3%, while the job creation element of the numbers also outstripped the level anticipated by analysts. The figures served to reinforce many investors’ belief that the Reserve Bank of Australia’s February interest rate cut may prove to be a one-off. Friday morning’s set-piece speech from RBA Governor Glen Stevens will provide Aussie-watchers with further evidence as to whether this is the case. Any suggestion that another cut is unlikely would strongly support the Australian tender, potentially sending GBP AUD down towards its 2015 low of 1.8343.
The other major risk event for the Aussie this week is tomorrow evening’s US Federal Reserve monetary policy announcement and Fed Chair Janet Yellen’s press conference which follows. A strong run of American jobs numbers, which has seen over 200,000 new positions generated in the world’s premier economy for the last twelve months on the trot, has led analysts to conclude that a rate hike from the Fed is just around the corner. If Yellen confirms this line of thought, then expect the risk-sensitive Aussie to suffer, potentially sending GBP AUD back up towards last week’s peak of 1.9857.
Heads Up
Summary of major upcoming data releases that we think may move the market.