Foreign Currency Market Update – GBP / AUD Update
The GBP/AUD exchange rate has trended between a low of 2.0349 and a high of 2.0689 during the past seven days.
The Australian Dollar was strengthened last week by news that the Australian government had approved a new dredging project near the Great Barrier Reef which will allow it to expand its Abbot Point coal terminal. The move will increase Australia’s coal export capacity and allow it to remain a competitive market player in the future.
Despite a rise in UK consumer confidence last week, with the GfK survey results rising to 2 points, the GBP/AUD exchange rate continued to slump during the London session. Borrowing figures printed worse-than-expected, with Public Sector Net Borrowing rising from £6.7 billion to £13.6 billion, surpassing the forecast £11.1 billion deficit.
Pound Sterling was aided by some positive US data which slowed the advance of the ‘Aussie’ and saw GBP/AUD trading narrowly in the region of 2.0498.
Although Wednesday’s data for the UK was mostly negative, particularly the three-quarter GDP forecast which dropped from 2.3% to 2.1% year-on-year (YoY), the UK economy was ranked as the best performing globally in 2015, pushing Pound Sterling up against the Australian Dollar. A faltering in US Durable Goods orders, with no growth posted for November after the rate of 2.9% in October, saw the US Dollar weaken, allowing the ‘Aussie’ to regain lost ground.
Trading was flat between midday during the London session on Christmas Eve until the end of the London session on the 27th, when the GBP/AUD exchange rate began to climb following a dip to a week-long low of 2.0349. Trading was once again flat on Monday, with Sterling sliding on Tuesday.
Pound Sterling has been harmed by calculations regarding the economic impact of the severe flooding in the north of England, with KPMG predicting that the disaster will have a long-term cost to the UK economy of £5.8 billion, while economists believe GDP could shrink by -0.2% as a result.
Looking ahead to 2016, the impact of falling commodity prices is likely to catch up with the Australian Dollar, which has so far managed to remain remarkably impervious to drops in the price of key Australian exports. The Reserve Bank of Australia (RBA) held interest rates at the last meeting and although it is technically more likely to cut rates than raise them, many economist are suggesting the next move will be to tighten monetary policy, which could take place towards the end of 2016. Australia is predicted to be the third modern economy, after the US and the UK, to raise interest rates.
With the Bank of England (BoE) likely to raise interest rates before the RBA, Pound Sterling could benefit from heightened anticipation of a rate hike, assuming Governor Mark Carney and other members of the Monetary Policy Committee (MPC) don’t remain as dovish towards the economy as they currently are.
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