Foreign Currency Market Update – GBP / AUD Update
The first four days of last week’s session saw the Australian Dollar leak support against Sterling as investors shifted out of Aussie-denominated assets ahead of Friday’s key US jobs numbers. The GBP AUD exchange rate had started the week in the middle part of the 1.9200s but the pair had climbed to the 1.9600s by the latter part of Thursday.
The Good Friday labour market numbers from the States carried added significance following last month’s assertion by the Federal Reserve that a significant improvement would be required in America’s jobs data before a US interest rate could be affected. When the March employment figures revealed that, for the first time in over a year, less than 200,000 jobs had been generated in the world’s premier economy, investors took this as a clear sign that the Fed’s ‘easy money’ low interest rates policy was set to continue for months to come. The fact that the official statistics also contained a marked downward revision to the counterpart January and February job creation numbers increased this feeling. Analysts blamed the below par stats on the inclement weather in North America during the first quarter of the year, but the upshot saw investors favour risk-driven currencies including the Australian Dollar and the GBP AUD pulled back into the 1.9300s before close of business on Friday as a consequence.
The Aussie recorded strong gains against Sterling during yesterday’s session following the Reserve Bank of Australia’s early morning announcement that it would be keeping its key interest rate on hold at 2.25%. A decent minority of analysts had been expecting the RBA to cut its headline rate, so the Aussie benefitted from the RBA’s decision to sit on its hands for another month. The news sent GBP AUD down to as low as 1.9335 and, given the increasing political uncertainty in the UK, there could be further losses to come for the pair ahead of next month’s UK General Election. Last Thursday’s 7-way leader’s debate was judged by most commentators to have been won by the Scottish National Party’s Nicola Sturgeon, increasing the likelihood of an uneasy Labour / SNP ‘confidence and supply’ arrangement in the aftermath of the May 7th popular ballot. Such an outcome, which would see the Scot Nats agree not to bring down a Labour minority government, while deciding whether to support individual bills on a vote-by-vote basis, would trigger pronounced nervousness amongst investors, potentially sending GBP AUD down to a fresh 10-week low below 1.8830.
Conversely, any suggestion from this evening’s Federal Reserve minutes that US interest rates will indeed be heading higher sooner rather than later would have the opposite effect, potentially sending the pair back up towards February’s multi-year high of 2.0032.
Heads Up
Summary of major upcoming data releases that we think may move the market.