Foreign Currency Market Update – GBP / AUD Update
By far the greatest influence on the Australian Dollar, and consequently the GBP/AUD exchange rate, over the past week was the People’s Bank of China (PBoC) initiating a surprise three-day run of Yuan (CNY) depreciations on the. As the principle export partner of Australia and the world’s second most influential economy, this Chinese action had a significant impact on global commodity prices and the entire Australasian basket of currencies. Ultimately the pairing peaked mid-week at a high of 2.1493, however, Sterling failing to hold onto its gains as disappointing UK jobs data limited the currency.
A slight improvement in the UK Construction Output figure on Friday only provided a limited boost to the Pound as the result of 2.6% failed to live up to the forecast of 3.3%. In spite of this the data did show an improvement on the previous month, demonstrating continued growth in output for the construction sector to restore some faith in the state of the UK economy. The relatively small role that the sector plays in the economy, at just 6-7% of total growth, was no doubt responsible for the restricted impact of the report, even as the GBP/AUD pairing remained on an uptrend heading into the weekend.
Ahead of Tuesday’s Reserve Bank of Australia (RBA) meeting minutes there has been a spate of commentary from board members as debate rises over the current outlook of the domestic economy and the possibility of imminent movement on interest rates. In the wake of China’s slowdown the prospect of Australian interest rate cuts have undeniably returned to the table, although this will ultimately not be reflected in these particular minutes. With distinct uncertainty lying over the collective sentiment of the RBA board as it stands the ‘Aussie’ could be poised to move either way.
Chances of a rate hike from the Bank of England (BoE), meanwhile, were reignited today by Monetary Policy Committee (MPC) member Kristin Forbes. Her comments regarding the potential damage to the UK economy that might arise from holding off on a rate hike too long inspired an increased level of hawkishness from traders, with hopes of an increase coming sooner rather than later seemingly restored. While it remains to be seen if any of Forbes MPC colleagues actually agree with this assessment, the Pound certainly benefitted in the short term and rose to 2.1281 this morning.
The release of the UK’s Consumer Price Index on Tuesday could prove to be a significant stimulus for the pairing. Any figure on or above forecast is likely to lend more weight to the current speculation of a potentially nearer BoE rate rise, encouraging investors to throw back in with Sterling. Given the level of importance that the MPC place on the CPI, with it being the prime measure of UK inflation, this will certainly be a result to watch.
Wednesday will see the release of the Westpac Leading Index figure for Australia, which offers a good indication of the state of the domestic economy. A continued lack of growth may not prove too fatal for the ‘Aussie’, although the present state of the global commodity market is likely to diminish the impact of any particularly positive result.
UK Retail Sales and Public Sector New Borrowing figures are also upcoming in the latter half of the week, with Australian data tailing off somewhat. In consequence the Pound could stand to make some marked gains on good results and drive the GBP/AUD pairing further upwards.
At time of writing the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trending in the range of 2.1233.
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Summary of major upcoming data releases that we think may move the market.