After Federal Reserve Chairwoman Janet Yellen delivered a dovish speech, reduced rate hike bets caused the Australian Dollar to strengthen versus most of its major peers.
Will AUD Strength Inspire a Rate Cut from the RBA?
Given that Reserve Bank of Australia (RBA) officials have been flagging concerns regarding AUD overvaluation for a long period, the recent gains may prompt a rate cut from the Oceanic central bank.
After the RBA attempted to talk down the currency, also known as jawboning, the Federal Reserve complained to the International Monetary Fund (IMF) on the grounds that the RBA promised to allow free-flowing currency movement. This has limited the tools available to RBA officials.
Many analysts predict that the RBA will avoid easing policy, however, including Commonwealth Bank of Australia chief economist Michael Blythe, who does not believe the high value of the ‘Aussie’ will be enough to push the central bank into introducing deeper rate cuts.
GBP Exchange Rates Struggle on Steel Crisis
Over the past seven days the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 1.8646 to 1.8996.
In response to consolidative trading the British Pound made some small gains earlier in the week. However, Thursday saw those gains wiped after it transpired that the Tata Steel company is selling the business and withdrawing from the UK.
The decline of Britain’s steel industry has been a long time coming, with many companies opting to use cheaper steel produced in China.
In addition to the uncertainty already caused by the EU referendum, the uncertainty surrounding the steel crisis has significantly reduced the appeal of the British asset.
GBP/AUD Exchange Rate Forecast: Chinese Manufacturing Data to Provoke Volatility
Given the weight political uncertainty is placing on demand for the Pound, and with the US Dollar showing no sign of a swift recovery, the GBP/AUD exchange rate may hold losses for the remainder of the week.
With that said, however, Friday’s Chinese ecostats are likely to provoke ‘Aussie’ volatility. In particular, traders will be closely monitoring China’s Manufacturing and Non-Manufacturing PMIs. If the data prints disappointingly is could cause the Australian Dollar to slump irrespective of US Dollar weakness.
In terms of British data, Nationwide House Prices and the Markit Manufacturing PMI have the potential to cause GBP volatility.
Heads Up
Summary of major upcoming data releases that we think may move the market.