If Greek debt negotiations fail to yield fruit sooner rather than later, then the GBP AUD exchange rate may stop bumping along the bottom of its range.
Foreign Currency Market Update – GBP / AUD Update
The Pound broke down to a new multi-year low of 1.4686 against the Australian Dollar last Thursday, breaching the existing support of 1.4712, which was reached on 17th January. The fact that the GBP AUD exchange rate set a new low so rapidly after the downward move which culminated on 17th January, sends out a negative signal for the pair. The GBP AUD rate has staged a mini-recovery since last Thursday, to make a renewed run at 1.4900 during today’s session, providing some reason for limited optimism, however clients needing to purchase Australian Dollars in the near term should remain cautious; a move below 1.4686 would plunge the pair into no-man’s land once again.
Australian Quarter 4 CPI inflation data, released in the early hours of last Wednesday morning, printed at 3.1%, versus Q3’s counterpart figure of 3.5%. Analysts had expected a higher figure for Q4, suggesting that the acceleration in Australian consumer prices of recent years is cooling. This gives the Reserve Bank of Australia increased scope for further interest rate cuts as 2012 progresses, which could weigh heavily on the Aussie. Meanwhile, UK data releases have proved damaging for Sterling over the past seven days – the release of the minutes of January’s Bank of England Monetary Policy Committee meeting, last Wednesday, showed that several committee members believe that the Bank should extend the £275bn already allocated to its asset purchase scheme, while UK growth data, also released on Wednesday, showed that British economic activity had contracted by 0.2% in the final three months of 2011. This hints that the UK economy may be heading towards a much-vaunted double-dip recession.
*Denotes the importance of the data item *** being the highest level.
** The latest GfK Consumer Confidence survey is released in the early hours of Tuesday morning. An improvement from December’s figure of -33 is expected.
** Tuesday morning sees the release of UK Mortgage Approval data for December.
** Wednesday, Thursday and Friday bring the release of the latest Purchasing Managers’ Index surveys for the UK’s Manufacturing, Construction and Services sectors respectively. The Services edition will be the most closely-watched.
** The early hours of Thursday morning sees the release of December’s Australian Trade Balance figures. A drop-off from November’s AUD1.38bn would suggest that the historically strong AUD is starting to hurt Australian exporters.
The situation in the eurozone continues to have a strong effect on the risk-sensitive Australian Dollar. Global investors have been spooked by Greece’s continuing inability to reach a deal with its creditors and this has seen appetite for risk ebb at the start of this week’s session, weakening the Australian Dollar. Investors will be looking to the EU summit, which started today, to provide reassurance. If Greek debt negotiations fail to yield fruit sooner rather than later, then the GBP AUD exchange rate may stop bumping along the bottom of its range and could make a recovery to trade back above the psychologically key 1.5000 level. Conversely, positive noises from Europe could cause world stock markets to improve, taking the Australian Dollar with them, sending the GBP AUD rate down through support at 1.4686.
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