After a survey from the National Association for Business Economics (NABE) showed a large portion of economists still expect the Federal Reserve to hike the overnight cash rate at least once in 2016, demand for the high-yielding Australian Dollar cooled.
Australian Dollar Enjoys Bullish Run Vs Pound, US Dollar
Over the past seven days the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 1.9056 to 1.9591.
Last week the Australian Dollar advanced versus most of its major peers after the Reserve Bank of Australia (RBA) opted to hold the overnight cash rate. In fact, the ‘Aussie’ (AUD) initially declined in response to a dovish speech from Governor Glenn Stevens, but major analysts commenting that the Australian Dollar has a long way to go before overvaluation concerns prompt RBA action led to traders believing Stevens was attempting to jawbone the asset.
Also supporting demand for the Oceanic currency was mounting speculation that the Federal Reserve would not be hiking the overnight cash rate for some time to come. These fears were fuelled by a stack of disappointing domestic data publications and concerning global economic conditions.
Whilst China’s economic woes are certainly not supportive of AUD appreciation, the People’s Bank of China’s (PBoC) extensive stimulus measures have caused market sentiment to improve significantly. As a high-yielding asset the ‘Aussie’ benefits from risk-on trading.
GBP Exchange Rates Climbed Last Week on Corrective Trading
Despite a slew of disappointing British reports, the UK Pound advanced versus most of its major peers last week. This was primarily the result of corrective trading amid concerns that the massive ‘Brexit’-fuelled depreciation was overdone.
Despite the Sterling recovery, the British economy faced a tumultuous week. The most recent set of PMI reports showed that manufacturing, construction and services output fell behind economists’ forecasts.
Of particular detriment was slower-than-anticipated services output. British gross domestic product is primarily made up of services output, so the latest figures have caused most analysts to predict long-term delays from the Bank of England (BoE) with regards to tighter policy.
Although uncertainty surrounding the EU referendum has far from abated, fears eased last week as polls suggested a lead in favour of those wishing to remain in the European Union.
GBP/AUD Exchange Rate Trending Narrowly, Will the ECB Decision Cause Volatility?
On Monday afternoon the Pound Sterling to Australian Dollar exchange rate was trending within a limited range.
The ‘Aussie’ uptrend was halted on Monday after a survey released from NABE showed that 80% of economists still foresee the Federal Reserve tightening monetary policy at least once in 2016. In addition, an unexpected contraction in Australia’s Job Advertisements also weighed on demand for the South Pacific asset.
In terms of GBP movement, corrective trading seems to have ended now, so the British Pound is likely to be more reactional to political developments regarding the EU referendum.
As we draw closer to Thursday’s European Central Bank (ECB) interest rate decision there is a chance that the Pound will gain. This is due to the likelihood that investors will want to pull away from major European assets given the expectation of aggressive stimulus measures from the Frankfurt-based central bank. The correlation between the Euro and the US Dollar means that a softer EUR tends to result in a more bullish USD – and a stronger US Dollar tends to undermine the ‘Aussie’.
Should this be the case, the GBP/AUD exchange rate could move away from recent ten year lows.
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