Foreign Currency Market Update – GBP / AUD Update
Over the past week the Pound Sterling to Australian Dollar exchange rate fell from highs of around 2.2091 to lows of 2.1611 as UK data undermined demand for the Pound and the appeal of the ‘Aussie’ was subject to Fed rate hike speculation.
Although the recent turmoil in Chinese stock markets and the prospect of a prolonged economic slowdown in the Asian nation have kept the Australian Dollar under pressure, the ‘Aussie’ advanced after the Reserve Bank of Australia (RBA) refrained from cutting interest rates at its last policy meeting and was supported last week by both the rising odds of the Fed leaving borrowing costs on hold in September and several upbeat domestic reports.
Australia’s AiG Performance of Construction Index returned to growth territory in August, rising from 47.1 to 53.8, while the NAB Business Conditions Index climbed from 6 to 11 and national investment lending rose 0.5%. While there were other less impressive Australian ecostats, like the nation’s markedly lower Business Confidence and Consumer Confidence reports, Thursday’s upbeat local jobs data counteracted their negative impact and bolstered AUD trading.
With Australia adding 17.4K positions in August rather than the 5.0K forecast, the nation’s unemployment rate fell from 6.3% to 6.2%. Over 11K of the jobs added last month were full time roles. Meanwhile, the Pound spent the first half of last week under pressure as the UK’s Industrial/Manufacturing Production, trade balance and GDP estimate figures all disappointed.
The GBP/AUD exchange rate was able to return to a multi-year best of 2.20 on Thursday as the Bank of England Meeting minutes were slightly more hawkish than anticipated, supporting hopes for a UK interest rate increase taking place in the first quarter of 2016. However, poor UK Construction Output data and concerns relating to the Labour Party leadership election saw Sterling soften before the weekend.
This week opened with the Pound trending around the 2.1672 level as the news that Eurosceptic Jeremy Corbyn was voted leader of the Labour party limited demand for Sterling. The GBP/AUD exchange rate then dipped as low as 2.1596 after Malcolm Turnbull was voted in as Australian Prime Minister. The belief that Turnbull is a moderniser and will help Australia get back on its feet bolstered the ‘Aussie’ ahead of the publication of minutes from the RBA’s recent policy meeting.
If the minutes indicate that the central bank is more content with the current strength of the ‘Aussie’ and has no plans to cut borrowing costs further in the near future – despite the situation in China – the Australian Dollar could extend its rally against the Pound.
Additional GBP/AUD declines could be recorded during the European session if the UK’s Consumer Price Index confirms that the pace of non-core annual inflation returned to 0.0% in August. While Australian ecostats are limited this week, Pound Sterling to Australian Dollar exchange rate movement is also likely to occur in response to the UK’s employment numbers for the three months through July and the hotly anticipated Federal Open Market Committee (FOMC) interest rate announcement. A rate hike from the FOMC on Thursday could send commodity-driven currencies like the ‘Aussie’ reeling, especially if the Fed also hints that borrowing costs could be revised again before the end of 2015.
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Summary of major upcoming data releases that we think may move the market.