The past week has seen the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate steadily decline from a high of 2.0528 to a low of 2.0008, although Sterling has managed to get off to a strong start so far this week with a notable advance against the ‘Aussie’.
UK Referendum Debacle Ended at Square One Last Week
One of the biggest influencers on the Pound’s movement last week came on Friday and related to the ongoing UK-EU Referendum negotiations being conducted by PM David Cameron.
Although the PM was engaged in talks with EU leaders in Brussels throughout the day, the end result was nil, with the PM emerging with the announcement that he had rejected the proposed ‘Emergency Brake’ scheme put forward by his continental counterparts. Suffice to say, this sent the Pound crashing due to concerns that a February wrap-up for the renegotiation stage would fall through.
Déjà vu for Investors Today during ‘Crucial’ 24 Hours for Cameron
In a similar situation to Friday, today’s ongoing UK news is focused around the Referendum process, with European Council President Donald Tusk stating that he has extended the deadline for a draft Referendum bill to be submitted by the PM by 24 hours. The popular consensus is that if Cameron is unable to meet this deadline, a February conclusion will be out of the question.
In more definite news, the UK Manufacturing PMI for January has risen from 52.1 to 52.9.
Chinese Economic Shifts Continue to Decide Australian Dollar Movement
The Australian Dollar largely rallied last despite China’s continuing stock market deterioration; the prevailing opinion was that with the situation so poor in China, immediate and decisive intervention from the government was all but guaranteed.
Today, however, a contraction in China’s Manufacturing score for January has severely damaged the Australian Dollar’s value. Adding to this sudden pessimism has been the result of Sunday’s January AiG Performance of Manufacturing Index, which slipped from 51.9 to 51.5.
This Week’s GBP/AUD Exchange Rate Forecast
For the current week, Pound Sterling/Australian Dollar exchange rate movement may occur as a result of tomorrow’s Reserve Bank of Australia (RBA) Interest Rate Decision and UK Construction PMI, Wednesday’s UK Composite and Services PMIs and Thursday’s Australian NAB Business Confidence score and Bank of England (BoE) Interest Rate Decision.
At the time of writing, no change was expected from the current Australian interest rate of 2%, but any particularly hawkish (or more likely dovish) comments from RBA Governor Glenn Stevens in the aftermath of the announcement are sure to generate ‘Aussie’ movement.
Later on, the UK’s construction score will be released, although Wednesday’s services score is likely to generate more movement given that it makes up the bulk of UK GDP.
No forecasts have been made for the NAB Confidence score on Thursday and no change is expected for the BoE’s Interest Rate Decision either, but the simultaneously released Inflation Report still has the potential to trigger significant Pound Sterling movement ahead of the weekend.
Heads Up
Summary of major upcoming data releases that we think may move the market.