Foreign Currency Market Update – GBP / AUD Update
Over the course of last week the GBP/AUD exchange rate moved between highs of 1.9518 and lows of 1.9110 before closing out Friday trading in the region of 1.9209. While the Australian Dollar fluctuated as a result of climbing iron ore prices and interest rate speculation, demand for the Pound eased as investors focused on the potential outcome of this week’s general election and a dismal Manufacturing PMI for the UK.
So far this week the Pound has posted additional declines against the Australian Dollar in response to the latest policy action by the Reserve Bank of Australia (RBA). Although bets that the RBA would cut interest rates wore on the ‘Aussie’ last week, the Australian Dollar broadly rallied after the central bank’s decision was announced. The RBA opted to cut the benchmark rate to 2.0%, as expected by economists, and the belief that this will be the last negative adjustment from the institution lent the Australian Dollar support.
As the week progresses the GBP/AUD exchange rate’s bearish run may continue as the UK’s uncertain political outlook hinders Sterling trade. Ecostats for Australia will also impact the pairing to a certain extent, with the nation’s Retail Sales and Employment figures being the most significant. If the Australian unemployment rate rises from 6.1% to 6.2% in April, as economists expect to be the case, the ‘Aussie’ could come under pressure. Investors with an interest in the GBP/AUD exchange rate will also be looking to data from China for direction. Wednesday sees the publication of the Asian nation’s HSBC Composite/Services PMIs for April while China’s trade numbers are due out on Friday. Negative reports from Australia’s main trading partner could kick the ‘Aussie’ into touch.
A flurry of currency market movement can be expected towards the close of the week as the RBA publishes its Monetary Policy Statement (which will shed light on the central bank’s interest rate decision and future outlook for borrowing costs) and the outcome of the UK election becomes known. A hung parliament or the prospect of lengthy coalition negotiations would deplete Sterling sentiment and may push GBP/AUD lower before the weekend. On Tuesday the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending in the region of 1.9191.
Heads Up
Summary of major upcoming data releases that we think may move the market.