With last week’s Pound Sterling movement being dominated by the fate of the nation’s steel industry, this week has seen media attention shift elsewhere, owing to the leaking of the so-called ‘Panama Papers’, which appear to expose countless companies and world leaders as engaging in tax-avoidance schemes.
The Pound has steadily ascended against the ‘Aussie’ this week, having risen from a starting point of 1.8521 to 1.8881.
GBP Down Vs ‘Aussie’ due to Steel Concerns
Last week the Pound’s performance against the Australian Dollar was poor for the most part, with Sterling steadily depreciating in the face of domestic headwinds and the ‘Aussie’ climbing on reduced Federal Reserve interest rate hike expectations.
In addition to UK data being of low volatility, the Pound was also unsettled by negative developments in the UK’s steel production sector. Owing to eye-watering losses, Indian corporation Tata decided to sell its Port Talbot plant, which sent panic rippling throughout markets.
Amid calls for the government to nationalise the plant (at least on a temporary basis), the Pound steadily slipped as a viable long-term solution seemed increasingly untenable.
Pound Rebounds on Hope of Potential Steel Buyer, HMRC Interest
The GBP/AUD pairing has managed to stage a gradual recovery so far this week, partially on account of recent positivity in UK economic news.
One source of support may have been the ‘Panama Papers’, which have been received with interest by HMRC and could result in the UK recouping a significant amount in tax.
Additionally, Indian businessman Sanjeev Gupta has expressed an interest in Port Talbot, although at the present time no concrete offers have been made for the steelmaking site.
Australian Dollar Unsettled by Rising US Economic Optimism
While the previous week brought little in terms of major Australian data, the currency was nonetheless shifted by global economic developments. Primarily, the ‘Aussie’ was weakened as the appeal of the US Dollar steadily rose, with the ‘Greenback’ being supported by Friday’s generally better-than-forecast Non-Farm Payrolls report.
The Australian Dollar has also dipped due to the potential fall-out from the Panama Papers. A recent run of disappointing domestic economic announcements and hints from the Reserve Bank of Australia (RBA) that AUD is currently overvalued have also taken a toll. The central bank left the interest rate at 2% this month but speculation that the central bank could cut borrowing costs in order to weaken the ‘Aussie’ weighed on demand for the South Pacific asset.
GBP/AUD Exchange Rate Forecast
For the rest of the present week, Pound Sterling/Australian Dollar exchange rate movement may occur as a result of tomorrow’s speech from RBA Assistant Governor Christopher Kent, Thursday’s Australian AiG Performance of Construction Index and Friday’s UK industrial/manufacturing output figures and national trade balance, all of which pertain to February.
On the face of it, forecasts are for a slight advance for the Australian construction score, a levelling out of annual UK industrial production, a drop in the annual manufacturing production result and a slight narrowing of the visible trade balance. Kent’s speech is due to cover the topic of economic forecasting.
Heads Up
Summary of major upcoming data releases that we think may move the market.