Foreign Currency Market Update – GBP / AUD Update
The past week has seen the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate plummet from a high of 0.4739 to a low of 0.4537 as the currency has been doubly impacted by pricing concerns over iron ore and today’s surprise crash in the world’s stock markets – an event dubbed ‘Black Monday’.
Last week, the ‘Aussie’ declined steadily against the Pound, although several unexpected developments allowed the Australian currency to fight its corner on occasion. The Australian Dollar was doing well against the Pound on Monday into Tuesday, when it reached its weekly high of 0.4739. However, the currency saw a reversal following the release of the Reserve Bank of Australia minutes on Tuesday morning, which had the overall message of ‘business as usual’. The big Pound-positive news on Tuesday was that a 0.1% increase had occurred in the UK annual inflation rate for July. Although fractional, this propelled the Pound to new heights, conversely sending the ‘Aussie’ down to 0.4670.
The Australian Dollar rose once again to 0.4700 on Wednesday when a large batch of US economic data failed to meet with forecasts, although the ‘Aussie’ swung into reverse again after the Federal Open Market Committee (FOMC) minutes were released later on. In a recurring theme, the Australian Dollar rose on Thursday as confusion reigned over what the overall sentiment expressed by the FOMC minutes actually was, but the currency recorded a predictable decline against the Pound before the weekend when the UK Public Sector Net Borrowing figure for July showed a -£2.07bn reduction in the UK debt level.
In its last jump of the week, the ‘Aussie’ rose after the US Manufacturing PMI for August came in below expectations.
Today, the Australian Dollar plummeted across the board, hitting a low of 0.4537 against the Pound after global stock markets went into the red (or the green, in the case of the Asian stock markets). This was caused by doubt over whether the Chinese government can support its declining economy; the latest measure of allowing stocks to be purchased using pension funds failed to placate any investors. Australia’s iron ore output was also placed under threat by increasing competition from South American companies that are heavily undercutting Australian prices.
This week, Australian Dollar/Pound Sterling (AUD/GBP) exchange rate movement may occur as a result of the Australian Conference Board Leading Index for June (out tomorrow), Reserve Bank of Australia Governor Glenn Stevens’ speech (also due tomorrow), the US Q2 GDP figure out on Thursday, the UK Q2 GDP figure out on Friday and the state of the global stock markets as a whole.
The Leading Index has no forecasts, but the previous result saw a 0.2% rise; anything remotely hawkish from Stevens will boost confidence in the ‘Aussie’ considerably; the US GDP has been forecast to increase and the UK GDP has also been forecast for growth. Additionally, any stabilisation in the stock market can only support the ‘Aussie’ and the world’s other commodity currencies.
Heads Up
Summary of major upcoming data releases that we think may move the market.