Even a trimming of domestic interest rates by Australia’s central bank tonight might not be enough to cause a shift out of the Aussie.
Foreign Currency Market Update – GBP / AUD Update
Sterling continued to flounder against the go-ahead Australian Dollar during last week’s session. This saw the GBP AUD exchange rate break down to 1.4649, yet another new multi-decade low, during trading last Friday. The pair has been stuck in a pronounced downtrend since the middle of December, when it last traded at above 1.5600. With the new highs getting lower and the new lows getting lower as well, from a technical perspective, there is little reason for optimism for clients needing to buy Australian Dollars.
Thursday’s Australian Trade Balance figure for December significantly bettered analysts expectations of a surplus of AU$1.2bn, printing at just over AU$1.7bn. This suggests that Australia’s key export industries are holding up well in spite of the relatively strong Australian Dollar. The Aussie Dollar was further assisted by Wednesday’s strong PMI Manufacturing sector survey from its key trading partner China. Meanwhile, there has been little in the way of tier one data releases in the UK over the past seven days – Friday’s better than anticipated UK PMI Services figure was perhaps the most significant. The survey showed at 56.0, confirming that Britain’s key service industries are expanding at their fastest rate since last March. UK Mortgage Approval and Nationwide House Price data, released mid-week, disappointed, hinting at a weakening in Britain’s housing market.
*Denotes the importance of the data item *** being the highest level.
** Thursday morning sees the release of the latest UK Industrial and Manufacturing Production figures. Industrial Production figures are expected to show an annualised contraction of 3.1%, while analysts expect the Manufacturing Production data to show a return to growth for the sector, following November’s negative figure.
** Thursday morning also sees the release of December’s UK Visible Trade Balance numbers. A deficit of some £8.6bn is expected.
*** The key UK data release this week comes at lunchtime Thursday, when the Bank of England Monetary Policy Committee announces its interest rate/asset purchase scheme decision. An upping of the current £275bn allocated by the Bank to its QE programme would be likely to damage the Pound.
** The closely-watched NIESR GDP Estimate for the UK is released on Thursday afternoon. If the monthly figure for January beats December’s counterpart number of 0.1%, then Sterling will be supported.
*** The key risk event in Australia comes in the early hours of Tuesday morning, when the Reserve Bank of Australia announces its interest rate decision. A cut in interest rates from their current 4.25% level to 4.00% is widely anticipated. If the RBA elects to ‘hold’, the Aussie could benefit.
*** Friday’s release of the Reserve Bank’s Board Statement will be closely-monitored for clues on future Australian monetary policy.
It will take something major to arrest the current strong downtrend in the GBP AUD exchange rate. Last Friday’s US employment data, which came out much better than expected, has increased investors’ appetite for assets which are perceived to be ‘riskier’ bets – this has further benefitted the Australian Dollar. Even a trimming of domestic interest rates by Australia’s central bank tonight might not be enough to cause a shift out of the Aussie, as a cut has already been widely factored-in by market participants. Clients requiring Australian Dollars will be hoping for bad news from Greece’s ongoing debt talks to weaken the Aussie. In the absence of such news, further downward movement is possible for GBP AUD, with a close below last Friday’s 1.4649 level sending out a strong negative signal for the pair.
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