Over the past seven days, the Pound Sterling to Australian Dollar exchange rate was trending within the range of 2.0209 to 2.0415.
Will the Recent ‘Aussie’ (AUD) Downtrend be Enough to Prevent RBA Intervention?
The Australian Dollar softened versus a number of its major peers last week in response to damp market sentiment. Fluctuating crude oil prices, emerging-market weakness and demand for carry trades caused the ‘Aussie’ to slump. The AUD downtrend was welcomed by the Reserve Bank of Australia (RBA) which has highlighted overvaluation as one of the principle hurdles to economic progress. With the RBA giving no hint as to how they will approach future policy decisions, however, many analysts are questioning whether the recent depreciation is enough to stave off intervention. But as the week drew to a close the Australian asset regained some ground as traders feared long-term delays to a Federal Reserve benchmark rate hike.
Meanwhile, the British Pound put on a mixed performance versus its major peers last week thanks to varied results from domestic data and uncertainty regarding the forthcoming EU referendum. As Prime Minister David Cameron attempts to reshape the relationship between the UK and the EU, uncertainty is likely to continue weighing on investor confidence. The prospect of delays to a Fed rate hike has eased pressure on the Bank of England (BoE) however, with the threat of wider policy divergence abating somewhat.
GBP/AUD Exchange Rate Slumps on PBoC Stimulus
On Monday the Pound Sterling to Australian Dollar exchange rate dived by over -0.7% in response to intervention from the People’s Bank of China (PBoC). After a weeklong break to celebrate the Lunar New Year, China’s central bank returned to the markets with a bang by introducing the highest Yuan fixing in three months. This caused market sentiment to improve significantly and allowed the Australian Dollar to rally versus most of its currency rivals. Also aiding demand for the ‘Aussie’ was positive domestic data which showed January’s New Motor Vehicle Sales grew on both an annual and a monthly basis.
The Pound, meanwhile, remained on the back foot amid continued anxieties surrounding the EU referendum. Many economists predict that the British PM will not convince all member states to agree to rules which would effectively benefit the UK over all other EU countries. Should Cameron fail it will give those campaigning for a ‘Brexit’ a real boost. Many multi-national companies have expressed concerns regarding the UK potentially leaving the EU, with some going so far as to say they would move headquarters from Britain in the event of a British exit from the EU.
Pound Sterling to Australian Dollar Exchange Rate Forecast to Extend Losses on Risk Appetite
Given that the PBoC is seemingly willing to continue intervention for as long as it takes to stabilise the currency and equity markets, there is a very high chance that market sentiment will continue to improve. This would cause the ‘Aussie’ to extend gains versus its British counterpart.
British inflation data will be at the forefront of Sterling trader focus this week so expect GBP/AUD exchange rate volatility in response to the UK’s consumer price data for January. In terms of Australian news the reports to be aware of include the minutes from the last RBA policy meeting and employment figures for January.
Heads Up
Summary of major upcoming data releases that we think may move the market.