Foreign Currency Market Update – GBP / AUD Update
Although the general expectation had been for the Federal Open Market Committee (FOMC) to leave domestic interest rates unchanged on Thursday the ‘Aussie’ was still substantially boosted as a result of the Fed’s unexpectedly dovish commentary. While Fed Chair Janet Yellen stressed the influence of recent negative global headwinds and the Chinese economic slowdown upon the decision, investors were more concerned with the reprieve this signalled from the threat of a stronger US Dollar. The antipodean currency was further shored up the following day as Reserve Bank of Australia (RBA) Governor Glenn Stevens expressed decided confidence in the ability of the Australian economy to weather the continued Chinese contractions, spurring the GBP/AUD exchange rate to a low of 2.1488.
However, as Bank of England (BoE) policymakers indicated that positive UK data could incline them towards making a move earlier than previously thought, the Pound soon began to reclaim lost ground. In spite of Monetary Policy Committee (MPC) member Andy Haldane cautioning that loosening might still be required to stimulate the domestic economy in the coming months, Sterling climbed to leave the GBP/AUD pairing a little higher at 2.1640 ahead of the weekend.
With the initial optimism caused by the lack of Fed tightening this month beginning to fade, the ‘Aussie’ was undermined by words from the President of the Atlanta Fed Dennis Lockhart. Affirming that an interest rate rise could still be on the cards before the end of the year, Lockhart emphasised that a relative stabilisation of global markets could be enough to prompt the Fed’s first move. Naturally this hawkish outlook soon saw commodity-correlated currencies diving freshly across the board, with the ‘Aussie’ no exception.
The early hours of Tuesday did see the release of some positive Australian data, as the second quarter domestic House Price Index was shown to have risen by 9.8% contrary to expectations of shrinking growth. While this did help to temporarily boost the antipodean currency it was not long before dropping commodity prices brought about a swift return to dovish territory. In spite of the UK’s Public Sector Net Borrowing demonstrating evidence of an increased domestic deficit today, the GBP/AUD conversion rate has nevertheless remained on a fairly narrow positive trend as the weakness of the Pound is offset by the softness of the ‘Aussie’.
Through the rest of the week there will be no further major domestic data releases from Australia, leaving the South Pacific currency generally reliant on the performance of its major commodities and the impact of foreign data to drive movement. As such it seems likely that the GBP/AUD currency pair will remain in positive territory in lieu of any ‘Aussie’-supportive developments. Any shortfalls on US figures over the coming days, and the resultant dampening of Fed hike speculation, could be enough to shore up the struggling antipodean currency. More evidence of a slowdown in China, however, may push the GBP/AUD exchange rate to a fresh fortnightly peak.
Heads Up
Summary of major upcoming data releases that we think may move the market.