Foreign Currency Market Update – GBP / AUD Update
The Australian Dollar has enjoyed its third consecutive week of gains against Sterling during the past seven days as a generalised improvement in global appetite for risk supported the export-driven Aussie.
Wednesday night proved to be the centrepiece risk event for GBP AUD, with the US Federal Reserve making its latest policy announcement. The Fed’s decision to hold rates was widely anticipated, but it was the tone of the austere institution’s accompanying missive which provoked sustained support for the Australian unit. Although the US central bank dropped the adjective ‘patient’ in describing its attitude towards the timing of a domestic interest rate increase, the fact that this was replaced by the advice that ‘further improvement’ in US labour market data would be needed before the Fed tightened its policy, calmed market participants’ fears that a rate hike might be imminent. Given that the Fed also pointed out that American economic growth had ‘moderated slightly’ since the turn of the year, investors concluded that the Fed’s ‘easy money’ policy will continue until well into 2015. Share markets soared and the Aussie improved against Sterling as a result, sending GBP AUD down to its lowest level since the final week of January at 1.9144 during Wednesday trading.
The latest Bank of England (BoE) minutes, out the following day, provided the Pound with a brief period of respite, revealing that two of the nine man policy committee had come close to voting for a rate increase. However, Friday’s unconfirmed reports that a BoE official had described a British rate cut as being ‘as likely’ as a rate hike, ensured that the Pound ended the week in meek form.
Looking ahead, this week is a quiet one for Australian data releases, so the focus for GBP AUD-watchers may fall back on Sterling. With the market already jittery regarding the medium-term direction of UK interest rates, tomorrow morning’s domestic CPI inflation numbers could be market-moving. Analysts are expecting the headline Consumer Price Index figure to reveal that the year-on-year pace of British price rises fell close to zero last month. Such a result will stoke talk of deflation, heaping renewed pressure on the Pound. If this provokes GBP AUD to break down through last week’s 2-month low, then its next stop heading Southwards could be its 2015 low of 1.8343. Conversely, if the inflation data suggests that the pace of UK price rises is accelerating once more, then a move back up towards 1.9857 could be on the cards for the pair.
Heads Up
Summary of major upcoming data releases that we think may move the market.