Foreign Currency Market Update – GBP / AUD Update
With Federal Reserve opacity feeding trader uncertainty, the currency market has seen comparatively subdued trade of late. As a risk-correlated currency, the ‘Aussie’ (AUD) is particularly sensitive to Fed bets. However, even the prospect of long-term delays to tighter Fed policy is unlikely to provoke sustained Australian Dollar appreciation. This is due to China’s economic struggles and the drop in commodity values (with specific reference to iron ore prices).
Last week saw the Australian Dollar fluctuate in response to US Dollar movement. In the immediate aftermath of the hawkish Federal Open Market Committee (FOMC) statement, which increased the likelihood of a December lift-off, the Australian Dollar dived versus its peers. Losses were short-lived, however, after a string of disappointing US data results dampened trader optimism and caused many rate hawks to delay bets into 2016.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 2.1670.
On Monday, the Australian Dollar continued to hold steady versus its major peers, although a depreciation against the Pound can be linked to better-than-anticipated British manufacturing output. The general lack of ‘Aussie’ movement, in addition to Fed rate hike uncertainty, can be linked to mixed results from both domestic data and Chinese economic data. Sunday saw China’s Manufacturing PMI unexpectedly contract, weighing on the ‘Aussie’ amid speculation of damp demand for Australian exports. October’s Australian Performance of Manufacturing PMI avoided contraction, however, which halted ‘Aussie’ losses. Although Monday’s Caixin China PMI still remained in contraction territory in October, the result bettered estimates which prevented a further Australian Dollar slide.
Whilst the Australian Dollar is expected to see quiet trade, there is a potential for a drop to the downside with commodity prices still struggling. The Shanghai Composite Index ended Monday’s Asian session 1.7% down, weighing on commodity prices. Iron ore continues to weaken and gold prices have cooled amid Fed uncertainty. Australia’s mining industry has struggled significantly with commodity prices falling, but the latest Trans-Pacific partnership deal and the prospect of easing restrictions on Yuan trade may provide support to the ailing sector.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate advanced by 0.3% on Monday.
Looking ahead, there are several influential domestic data publications over the coming week with the potential to provoke changes for the ‘Aussie’. Most critically for those invested in the Australian Dollar will be the Reserve Bank of Australia (RBA) interest rate decision on Tuesday. Whilst very few economists expect any changes at this juncture, the central bank is likely to open the door for future easing. The Performance of Construction Index, Trade Balance, Retail Sales and the Performance of Services Index will all be of interest to those trading with the ‘Aussie’. Chinese and US data will also impact the Australian Dollar.
In terms of the AUD/GBP exchange rate, Thursday will be of huge significance. Not only will the Bank of England (BoE) Monetary Policy Committee (MPC) make their interest rate decision, but the minutes from said meeting and the central bank’s quarterly inflation report will be published simultaneously.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 2.1567 to 2.1709 during Monday’s European session.
Heads Up
Summary of major upcoming data releases that we think may move the market.