Foreign Currency Market Update – GBP / AUD Update
The Australian Dollar enjoyed a bullish run in the wake of the more hawkish tone struck by the Reserve Bank of Australia (RBA) at last week’s policy meeting, pushing the GBP/AUD exchange rate to a six-month low of 2.0352. Having held interest rates unchanged at the final rate decision of the year, the RBA signalled a general optimism in the outlook of the domestic economy despite the continued downside risks of a Chinese slowdown. This point of view was supported further as third quarter Australian GDP showed a sizable uptick in growth on the year, rising from 1.9% to 2.5% as the nation moves increasingly onto a post-mining footing.
However, this ‘Aussie’ buoyance was ultimately not long-lived as the October trade deficit was found to have widened by more than expected, dragged down by a sharp slump in exports. The November Services PMI also helped to take some of the wind out of the antipodean currency’s sails, as the sector unexpectedly slowed to 48.2. With this less positive data, and the increasingly strong chances of the Federal Open Market Committee (FOMC) voting to raise interest rates before the end of the year, the appeal of the Australian Dollar was decidedly dented.
A stronger-than-expected UK Services PMI, meanwhile, helped to drive up demand for the Pound. After poorer performances from both the manufacturing and construction sectors the continuing expansion of the service industry was sufficient reassurance to investors, despite increasing concerns over the unbalanced state of the local economy’s recovery. Pundits have also been showing hope that a December Fed move could prompt that Bank of England (BoE) to pull the trigger on interest rates sooner rather than later.
Commodity prices entered a dramatic slump on Tuesday after the latest Chinese trade balance proved disappointing, with the nation’s surplus narrowing and exports showing more severe contraction than forecast. This latest signal of slowing demand from the world’s second largest economy prompted base metal prices to slide, with iron ore in particular plunging to its lowest value in a decade. With market risk aversion climbing on the back of this latest rout the Australian Dollar was softened, allowing the GBP/AUD exchange rate to surge to a two-week best of 2.0975 in spite of a lack of wider Sterling support.
Fresh volatility should be expected for the GBP/AUD pairing tomorrow as the Bank of England (BoE) will be delivering its final interest rate decision of the year, with traders keen for signs of hawkishness from policymakers. A more cautious set of meeting minutes are likely to weigh on the Pound, even though there is no expectation for any particular shift in voting at this meeting. The ‘Aussie’ may struggle to capitalise on its rival’s softness, though, as the day’s Australian Unemployment Rate is forecast to demonstrate an increase in domestic unemployment.
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Summary of major upcoming data releases that we think may move the market.