As traders await minutes from the most recent Reserve Bank of Australia (RBA) interest rate decision, the Australian Dollar ticked fractionally higher versus its major peers.
GBP/AUD Exchange Rate Brushed 3-Month High
In response to generally dampened market sentiment, thanks to global stock volatility and falling commodity prices, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate appreciated last week. With that said, however, ‘Aussie’ (AUD) losses have been somewhat slow thanks to US Dollar weakness and speculation of long-term delays to a Federal Reserve cash rate increase.
Sterling made steady gains versus most of its major peers amid easing ‘Brexit’ concerns. This was because Bank of England (BoE) Governor Mark Carney gave the clearest warning yet that voting to leave the EU could cause a technical recession and will almost certainly hamper economic growth. Carney’s pull-no-punches statement was thought to give the ‘remain’ campaign a real boost amid hopes that undecided voters will now be persuaded to vote to remain a member of the European Union.
Pound Forecast to Decline Against ‘Aussie’ as Asian Equities Rise
On Monday the British Pound edged fractionally lower versus its antipodean counterpart despite domestic data showing house prices rose in May. The UK unit was trending narrowly versus most of its major peers, however, with market volatility subdued amid thin trade and a lack of high-impact ecostats.
Also weighing heavily on demand for Sterling was the publication of a report from the Confederation of British Industry (CBI). The report stated that CBI reduced its UK growth forecasts for 2016 and 2017 to just 2%. The reason for the predicted slowdown is the long period of EU referendum uncertainty. This is thought to be having a negative impact on foreign investment, trade and domestic sectoral growth.
Meanwhile, the Australian Dollar ticked slightly higher versus many of its currency competitors despite a complete absence of domestic data to provoke volatility. The ‘Aussie’ (AUD) appreciation can be linked to improved market sentiment as crude oil prices gain and Asian stock values recover.
Last week market sentiment was particularly damp in response to a considerable slide in Hong Kong’s Hang Seng Index. However, at the close of Monday’s Asian session the Hang Seng Index closed close to 0.9% higher, erasing some of last week’s losses.
RBA Minutes to Provoke Volatility
There will be a number of domestic data publications this week with potential to provoke significant GBP/AUD exchange rate volatility. Tuesday’s Australasian session will see the publication of the RBA’s most recent policy meeting minutes. Given that the central bank surprised markets by cutting the overnight cash rate to a record-low 1.75% following the most recent meeting, there is a high chance that the minutes will be dovish in tone.
Also likely to have a significant impact on the GBP/AUD exchange rate will be Tuesday’s British Consumer Price Index. Given that low inflation has been a persistent issue for Bank of England policymakers, the data will be closely watched by traders. Any sign that inflation is improving could see a marked GBP appreciation.
In addition to domestic data; market sentiment, US Dollar strength commodity prices and equity values could all impact the GBP/AUD exchange rate over the next few days. In addition, both UK and Australian political developments could prove highly impactful. The former is facing uncertainty with regards to the EU and the latter has seen a snap election called.
During Monday’s European session, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending within the range of 1.9657 to 1.9744.
Heads Up
Summary of major upcoming data releases that we think may move the market.