Foreign Currency Market Update – GBP / AUD Update
Although the Pound’s post-election rally has run out of steam, the British currency was still able to hold its own against the Australian Dollar for much of last week. Over the past five days the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has fluctuated between highs of 1.9760 and lows of 1.9322.
Last Monday the Pound was still trading strongly off the back of the Conservative party’s unexpected outright UK general election victory and the British currency’s rally continued until the Bank of England (BoE) published a surprisingly dovish inflation report. As the central bank negatively revised its growth forecasts for both this year and next, investors took the report as a sign that interest rates will remain on hold until at least this time next year and Sterling softened accordingly.
However, losses against the Pound were limited as China’s below forecast industrial production and trade balance figures triggered Australian Dollar declines. Bets that the Reserve Bank of Australia (RBA) hasn’t actually finished its current easing cycle applied further downward pressure on the ‘Aussie’ and saw the South Pacific asset trim the gains accrued in the wake of the poor US retail sales report. Rate cut speculation rose further at the outset of this week as the RBA’s Deputy Governor stated; ‘we still have scope to lower interest rates if we need to. That doesn’t mean we’re going to, but we have scope to do that if we need to and nothing has changed in that dimension.’
In the week ahead the Australian reports with the most potential to initiate GBP/AUD exchange rate movement include Australia’s Conference Board leading Index, the publication of the minutes from the May RBA meeting and the Westpac Consumer Confidence Index. The minutes will be crucial as further hints that the central bank intends to negatively revise borrowing costs in the near future will weigh heavily on the ‘Aussie’. However, the direction taken by the Pound Sterling to Australian Dollar (GBP/AUD) currency pair will also depend on how UK data prints – including Tuesday’s UK Consumer Price Index. If the UK’s inflation data shows acceleration in consumer price gains it will lend Sterling support. However, a negative reading could push the British currency lower.
Similarly, the Bank of England’s meeting minutes are due out later in the week and will show whether the nine-member Monetary Policy Committee was divided on the subject of the timeline for increasing interest rates. Any division among policymakers would bring forward rate hike bets and drive the Pound higher. China’s HSBC Manufacturing PMI, due out on Thursday, will also have an impact on the direction taken by the GBP/AUD pairing.
On Monday the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trading in the region of 1.9586.
Heads Up
Summary of major upcoming data releases that we think may move the market.