Foreign Currency Market Update – GBP / AUD Update
The Pound Sterling Australian Dollar exchange rate traded at above the 1.9600 threshold during the early part of last week, but by the final stretch of the weekly session the pair was holding at just above the 1.9000 level.
The steady fall for GBP AUD was driven by a combination of a strengthening Aussie Dollar and an anaemic Pound. The latest Reserve Bank of Australia (RBA) policy decision, which was announced during the early hours of Tuesday morning, saw the Australian central bank maintain its key lending rate at 2.25%. The move, which came against the expectations of many analysts, added to the impression that the RBA’s February interest rate cut may now stand as a one-off action, helping to bolster support for the local tender throughout the remainder of the week.
Meanwhile, the Pound struggled during the latter part of last week’s session. Figures pointing to a contraction in the UK construction sector, coupled with a disappointing set of domestic Industrial Output data, held back Sterling. Many analysts now feel that official figures may show that the British economy grew by a lower amount in the first quarter of 2015 than in the final three months of last year. Commentators suggest that the flagging economic situation has been driven by investors’ concerns regarding the domestic political landscape ahead of next month’s UK General Election.
Looking ahead, this week’s session could bring pronounced price action for the Pound Sterling Australian Dollar exchange rate. Tomorrow morning’s UK CPI inflation numbers have the potential to be seminal for Sterling. Analysts believe that there is a live chance that the official data will reveal that the British economy slid into deflation last month. Such an outcome would weigh heavily on Sterling, potentially sending GBP AUD down towards its 2015 low of 1.8551.
However, the middle part of the week could see the pair reverse its near-term losses. The latest Australian labour market figures, due for publication in the early hours of Thursday morning, are expected to show that some 15,000 jobs were generated in the local economy last month. Anything below this and investors holding the Aussie will become increasingly nervous that the RBA might be set to cut rates sooner rather than later. Meanwhile, Q1 Gross Domestic Product data from China, released 24hrs earlier, could be equally harmful to the Aussie; analysts expect the numbers to point to a drop in Chinese economic activity to a relatively lowly annualised 7.0%. If the brace of data releases does indeed harm the Aussie, then look for GBP AUD to recover towards last week’s high of 1.9649.
Heads Up
Summary of major upcoming data releases that we think may move the market.