Foreign Currency Market Update – GBP / AUD Update
Over the past month, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been trending within the range of 1.9008 – 2.0049.
As traders prepare for the Reserve Bank of Australia (RBA) interest rate decision, due on Tuesday of this week, the Australian Dollar strengthened versus many of its closest currency rivals on Monday. The appreciation has been in stark contrast to the past week of declination as a result of dampened risk-appetite. The catalyst for the ‘Aussie’ recovery is the combination of mostly positive domestic data and relatively upbeat reports from China. The appreciation has been somewhat slowed, however, as the strength of the US Dollar has seen cooling demand for high-yielding assets.
Last week the ‘Aussie’ was trending in a weak position as headwinds from a surging US Dollar and faltering domestic data saw traders reluctant to invest in the Oceanic currency. Additionally, geopolitical tensions in Europe weighed on demand for risk-correlated assets. Although last week’s domestic data mostly produced poor results, there weren’t any publications with significant enough weighting to provoke RBA intervention. The weaker ‘Aussie’ will actually be well received by the central bank’s officials who have been openly complaining about Australian Dollar overvaluation from some time.
Monday saw the Australian asset advance versus many of its closest traded currency rivals after domestic data produced better-than-expected results. The AiG Performance of Manufacturing Index increased from 48 to 52.3, moving from contraction territory into growth. Also aiding the ‘Aussie’ uptrend was economic data out of China. Although China’s Manufacturing PMI failed to meet with the forecast jump from 50.1 to 50.3, May’s actual result of 50.2 remained in growth territory. The ‘Aussie’ advance has been somewhat sluggish, however, as traders await the RBA rate decision. Although most experts predict that policymakers will keep the cash rate unchanged, there is the potential for intervention if the RBA feels that the overvaluation of the ‘Aussie’ requires a policy adjustment.
Over the coming week there will be several Australian data publications with the potential to provoke volatility. Of particular importance will be Wednesday’s Gross Domestic Product for the first-quarter. In addition; AiG Performance of Construction Index, Retail Sales, Trade Balance and the AiG Performance of Service Index will all be of interest to those invested in the South Pacific Asset. With that being said, however, ‘Aussie’ volatility will mostly be dictated by the performance of the US Dollar, market sentiment and commodity prices.
On Monday morning, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 1.9900 – 2.0011 having declined by around -0.45%.
Heads Up
Summary of major upcoming data releases that we think may move the market.