Foreign Currency Market Update – GBP / AUD Update
With geopolitical tensions in Europe reaching breaking point, the Australian Dollar softened versus many of its peers last week. The lack of demand was exacerbated by speculation that the Reserve Bank of Australia (RBA) will cut the benchmark interest rate in order to counteract the Oceanic asset’s overvaluation. Not only will that compromise the high-yielding potential of the ‘Aussie’ (AUD), but also may cause problems in Sydney where a housing bubble is already alienating first-time buyers. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate reached a 71-month high last week as a result of sanguine British data and dampened market sentiment.
Although the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate enjoyed some fresh highs, the ‘Aussie’ declination was somewhat slowed over the second half of the week thanks to a bearish US Dollar. With the Federal Open Market Committee (FOMC) having a relatively dovish outlook and US ecostats supporting speculation of a slow second-quarter, futures traders have delayed bets as to the timing of a benchmark rate increase. The longer the delay to a Fed liftoff, the higher demand for the Australian Dollar is likely to climb. The RBA will be hoping for a sooner-than-expected Fed rate hike so as to devalue the ‘Aussie’ without incurring poor economic data.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 1.9977 – 2.0524 over the past week.
On Monday, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within a limited range thanks to a complete absence of domestic data. With traders treading cautiously ahead of news from the emergency summit to discuss Greece, the currency market is relatively slow moving. Should the meeting conclude without any significant progress made, the ‘Aussie’ is likely to slump amid dampened trader risk-appetite.
Looking ahead, this week is likely to see ‘Aussie’ trading dominated by market sentiment, RBA rate cut speculation and iron ore prices. Should RBA officials make any dovish comments the Australian asset will decline versus its peers. The same is likely to occur if Greece fails to secure aid. Iron ore prices will also impact Australian Dollar movement this week. Goldman Sachs Group Inc. has forecast iron ore prices will continue dropping as increased supply from Australia and Brazil far outweighs global demand. For those invested in the Australian asset, Tuesday’s domestic House Price Index and Thursday’s Job Vacancies data publications have the potential to provoke ‘Aussie’ volatility.
Heads Up
Summary of major upcoming data releases that we think may move the market.