Foreign Currency Market Update – GBP / AUD Update
After trending in the region of a six-month high, the GBP/AUD exchange rate softened slightly as markets resumed trading following the Bank Holiday break. Over the course of last week concerns that the Reserve Bank of Australia (RBA) may intend to implement further easing, coupled with a rallying US Dollar and mixed domestic data, saw the Pound Sterling to Australian Dollar exchange rate advance from a low of 1.9426 to a high of 1.9905.
The Pound was able to gain on its Australian rival at the beginning of last week as the minutes from the recent RBA policy meeting showed that the central bank is not ruling out introducing another interest rate cut. The minutes stated; ‘Members agreed that […] the statement communicating the decision would not contain any guidance on the future path of monetary policy. Members did not see this as limiting the board’s scope for action that might be appropriate at future meetings.’
Although Sterling later faltered as the UK’s Consumer Price Index showed that the nation entered deflation territory for the first time since 1960, the GBP/AUD pairing consolidated and extended gains following the publication of minutes from the Bank of England’s last gathering. The minutes were fairly hawkish in tone in that they intimated that borrowing costs will be adjusted within the year and that two members of the Monetary Policy Committee (MPC) are close to breaking ranks and voting for immediate revisions. As China’s HSBC Manufacturing PMI also showed less improvement than expected and UK retail sales surged, the GBP/AUD pairing remained trading in a stronger position for the second half of the week.
Profit taking and Brexit concerns saw the Pound soften slightly before the weekend, and GBP/AUD is currently holding around the 1.9746 level ahead of the release of this week’s main UK and Australian ecostats. Australia’s Westpac Leading Index and China’s Industrial Profits report could prompt some ‘Aussie’ movement on Wednesday, while China’s leading index and the UK’s first quarter growth data will be driving GBP/AUD volatility on Thursday. If the UK’s first quarter growth figure is positively revised from 0.3% to 0.4%, as expected, Sterling could advance on the Australian Dollar.
A final bout of GBP/AUD fluctuations could be inspired by the GfK Consumer Confidence Survey (which is believed to have held at 4) and Australia’s New Home Sales figures. Additionally, if this week’s US ecostats (including today’s Durable Goods Orders, Consumer Confidence and Markit Services PMI) show an unexpected improvement and support the case in favour of a Federal Reserve rate hike taking place before December, higher-risk currencies like the ‘Aussie’ will come under pressure.
Heads Up
Summary of major upcoming data releases that we think may move the market.