Foreign Currency Market Update – GBP / AUD Update
Over the past week the Pound Sterling to Australian Dollar was trending within the range of 2.0527 – 2.0648.
The Australian Dollar has generally been trending lower versus its peers over after BlackRock tipped the Reserve Bank of Australia (RBA) to cut rates by as much as half a percentage point over the course of 2016. In addition, BlackRock forecast the Oceanic currency would drop below US70¢. Whilst the Australian Dollar softened last week in response to speculation regarding policy easing, the Pound advanced thanks to predictions that the Bank of England (BoE) will be one of the first major central banks to begin a rate hike cycle. The divergence between the two central banks could widen if the South Pacific asset continues to hold a high value and Australian business capital spending remains weak.
With tensions in Greece reaching breaking point, demand for safe-haven assets has seen the ‘Aussie’ (AUD) begin this week softer. Greek banks have closed, the government has imposed capital controls and Prime Minister Alexis Tsipras has called for a referendum on the latest reform proposals put forward by creditors. With the situation throwing up many unknowns and general uncertainty, risk-averse trading is likely to continue for some time and weigh on demand for the high-yielding Australian Dollar. As a result of damp risk appetite, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate reached a new71-month high.
The Pound, meanwhile, has broadly pared gains after a recent surge caused traders to lock in profits. Speculation that the BoE could overtake the Federal Reserve with regards to initiating a policy tightening cycle caused the Pound to rally to fresh highs versus a number of its rivals last week. Those fresh highs opened up a number of attractive selling positions, causing the Pound to edge lower as traders engage in profit-taking.
Looking ahead, there will be several influential domestic data publications with the potential to provoke changes for the Australian Dollar and the GBP/AUD pairing. With that being said, there is a high potential that data will have minimal impact with market sentiment dominating trade and focus firmly set on proceedings in Europe. However, for those invested in the Oceanic currency, seasonally-adjusted Retail Sales and the AiG Performance of Services/Manufacturing Indexes will be of most significance. Manufacturing data out of China may also impact ‘Aussie’ movement. There will be several influential British data publications over the coming week. Of particular significance will be the final figure for 1st-quarter Gross Domestic Product, which is forecast to be positively revised from 2.4% to 2.5% year-on-year.
Heads Up
Summary of major upcoming data releases that we think may move the market.