The latest set of US Non-Farm Payrolls data in the US severely disappointed investors, printing well below expectations.
Foreign Currency Market Update – GBP / AUD Update
The recent bout of selling pressure, which the Australian Dollar has experienced, continued into the early part of last week. Although the Reserve Bank of Australia announced early on Tuesday morning that, as per expectations, it would be maintaining its key lending rate at 3.5%, the Australian currency remained out of favour over the subsequent 48hrs thanks to a weaker than expected set of domestic Q2 GDP growth numbers and worryingly tame Australian labour market data. The jobs figures revealed that net domestic employment dipped by 8,800 last month, against expectations of a rise of 5,000, raising fears that the recent downward shift in commodities prices is starting to hurt the ‘Aussie’.
The RBA’s statement which accompanied its rate announcement observed that economic growth in Australia’s key trading partner, China, remained ‘reasonably robust’ in the first half of this year, causing a brief firming of the Australian Dollar. However, it was policy announcements and predicted actions from the global economy’s two predominant central banks which eventually triggered an improvement for the AUD. Thursday lunchtime’s statement by the European Central Bank President Mario Draghi which revealed that his organisation would be stepping into the bond market to buy-up the gilts of debt-distressed eurozone nations using an ‘unlimited’ tranche of funds, elicited a sea-change in risk sentiment amongst the international investment community. The euroland’s ongoing debt crisis has consistently played on the minds of market participants; Thursday’s announcement from Draghi is likely to assuage their fears for many months to come, removing one of the major barriers which was preventing the ‘Aussie’ gaining ground in the currency markets.
Then, on Friday afternoon, the latest set of US Non-Farm Payrolls data in the US severely disappointed investors, printing well below expectations. Ordinarily, this would have triggered a shift out of risk by investors, hurting the AUD. This time, however, things were different. Analysts interpreted the weak US jobs number as an indicator that a third tranche of Quantitative Easing might be on the cards for the US economy. Equities traders could be heard smacking their lips in anticipation and stock markets rallied at the mere thought of such an outcome.
GBP AUD has spent the early part of this week firmly lodged in the 1.5400s, having broken to an 11-week high of 1.5637 in the middle part of last week. If market babble regarding QE3 in the US starts to increase, then the pair could continue to trend downwards towards its key interim floor of 1.4711 which it reached a month ago. For this reason, caution remains advisable for clients needing to buy Australian Dollars in the near-term.
Summary of major upcoming data releases that we think may move the market.
- Sterling spent the early part of last week firmly in the ascendency against the South African Rand
- The Canadian Dollar came under selling pressure in the early part of the week
- The Canadian Dollar was strongly supported against the Pound during the early part of last week’s trading session
- The Canadian dollar strengthened in the early part of last week
- The AUD came under further selling pressure in the middle part of last week