Foreign Currency Market Update – GBP / AUD Update
The GBP/AUD exchange rate has traded between a low of 0.4714 and a high of 0.4825 during the past seven days.
Positive employment data caused an ‘Aussie’ (AUD) surge on Thursday, with figures showing that the labour market had once again out-performed predictions. Unemployment unexpectedly dropped to 5.8% instead of rising to 6.0%, while Employment Change figures defied the forecasts which predicted a -10k loss in jobs, instead showing that 71.4k new roles had been created in November. The data, combined with an increase in Consumer Inflation Expectation in December from 3.5% to 4.0%, saw the Australian Dollar leap from 0.4766 to 0.4825 against Pound Sterling.
After the initial trading frenzy caused by the stellar job data, Pound Sterling was able to regain ground on Friday, despite being weakened by a wider-than-expected trade deficit and another dovish meeting outcome by the Bank of England’s (BoE) Monetary Policy Committee (MPC). Traders were unsurprised by the MPC decision to leave interest rates on hold at 0.50% and keep the rate of asset purchasing at 375 billion, however the fact that Ian McCafferty was the only member to vote for an interest rate hike once again has shown that overall the MPC’s attitude to monetary policy is still dovish.
While Pound Sterling was weakened by the decision, the Australian Dollar fared worse as economists once again raised concerns over the validity of the Australian Bureau of Statistics’ data. The agency has been challenged before for releasing questionable numbers. By the end of the week the Australian Dollar had dropped to 0.4721.
Events in the US have been having a significant impact upon the GBP/AUD exchange rate as the important decision on interest rates by the Federal Open Market Committee (FOMC) takes place on Wednesday. The Australian Dollar has been able to capitalise on a weak US Dollar as trader appetite for the ‘Buck’ stays cool ahead of the decision, although the ‘Aussie’ is feeling the pressure now that the announcement is immanent. A combination of Pound Sterling being kept weak by the fallout from the BoE decision and weakness in the US Dollar gave the Australian Dollar plenty of room to advance.
Positive UK Consumer Price Index figures today have allowed Pound Sterling to appreciate again, as the non-core index increased from -0.1% to 0.1%, while the core index rose to the 1.2% level experts had forecast. The US CPI has also performed as expected, further weakening the Australian Dollar and allowing Pound Sterling to gain 0.4% to trade around 2.0982.
There is no significant data due out for Australia for the rest of the week, so the GBP/AUD exchange rate will likely be determined by the data for other countries. UK labour market data is set for release tomorrow, with retail sales figures following on Thursday. The Federal Reserve announce their interest rate decision tomorrow towards the end of the London session, which could see turbulence for the Australian Dollar.
Heads Up
Summary of major upcoming data releases that we think may move the market.