Foreign Currency Market Update – GBP / AUD Update
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate struck a near-term high of 1.9457 during the final 48hrs of last week’s session, but has since fallen back to trade into the upper part of the 1.9100s.
The main causes of the GBP AUD slide include recovering iron ore prices and reduced Reserve Bank of Australia (RBA) interest rate cut expectations. The price of iron ore rallied to 59.88 US Dollars a tonne on Wednesday, and the Australian Dollar tracked the asset’s gains. As well as advancing on Sterling, the Australian Dollar was able to push above the 0.80 cents level against the US Dollar as a result of the commodity’s climb.
Although the minutes from the last RBA policy meeting indicated that the central bank was considering a further negative revision to borrowing costs, Australia has published some solid economic reports since they were taken – including last week’s higher-than-expected consumer price rise numbers. The improved inflation outlook, coupled with the introduction of additional stimulus measures in China (Australia’s largest trading partner) has seen some analysts pare back forecasts for a May rate cut from the RBA and the ‘Aussie’ has gained accordingly.
GBP AUD losses have been tempered by broad-based Sterling strength however, with the Pound managing to maintain a bullish relationship with several of its most traded peers despite the pace of UK first quarter growth slowing by more than anticipated. The UK general election may only be days away, but Sterling is weathering the storm of political uncertainty extremely well; however, the currency may well experience a reversal of fortunes in the lead up to vote.
While the Australian Dollar is likely to gain if the US Federal Open Market Committee (FOMC) delivers a dovish policy statement during Wednesday’s North American session – which is expected given the recent run of sub-par US data – dips in China’s Manufacturing and Non Manufacturing PMI may weigh on the currency before the weekend. Next week the GBP AUD exchange rate could experience notable volatility in response to the RBA interest rate decision. If the central bank refrains from cutting interest rates, and doesn’t imply that a cut is forthcoming, the Australian Dollar will advance. The UK’s Markit Services/Composite PMIs may prove to have the biggest impact on demand for Sterling, but the general election will be drawing focus in the latter half of the week. A hung parliament could see the GBP AUD exchange rate fall below 1.9100.
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