Foreign Currency Market Update – GBP / AUD Update
Over the past week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 2.0826 to 2.1256. In general, the Pound has climbed versus its South Pacific counterpart thanks to a combination of positive domestic data and hawkish sentiment from the Bank of England (BoE). The ‘Aussie’ (AUD), meanwhile, softened amid damp market sentiment, US Dollar strength and weak commodity prices.
Geopolitical tensions in Europe led to cooling demand for the ‘Aussie’ and the currency advanced modestly after the situation in Greece improved. Gains were relatively short-lived, however, as Federal Reserve rate hike rhetoric weighed on demand for the high-yielding ‘Aussie’. In addition, fears regarding a significant economic slowdown in China have caused commodity prices to weaken. The commodity sector has been the worst performing asset class in 2015 thus far. US Dollar strength has had a particularly detrimental effect on gold prices which, in turn, has caused the Oceanic currency to decline versus its peers.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 2.1147 – a six-year high. ‘Aussie’ depreciation was occurred during Tuesday’s European session after the publication of minutes from the most recent Reserve Bank of Australia (RBA) interest rate decision. The minutes indicated that another rate cut may be required in order to achieve ‘balanced growth in the economy and that further depreciation [in the domestic currency] seemed both likely and necessary.’ Certainly, commodity prices are expected to remain weak with demand from China cooling and expectations of a Federal Reserve benchmark rate hike in the third-quarter.
Looking ahead, Wednesday of this week will be significant for those trading with the Australian Dollar. Consumer Price data holds significant economic weighting and is very likely to provoke ‘Aussie’ volatility. However, any positive result may be overshadowed by dragging commodity prices. This is especially true with iron ore after Goldman Sachs’ analysts predicted a severe slowdown in prices due to waning demand from China. US data is also likely to have an impact on the Australian asset. With trader focus dominated by Fed rate hike speculation, any positive US data result is likely to cause ‘Aussie’ depreciation as rate hawks bring forward bets as to the timing of a rate liftoff. This would be welcomed by RBA officials who want to see ‘Aussie’ devaluation as a response to global developments rather than local economic difficulties.
Heads Up
Summary of major upcoming data releases that we think may move the market.