Pound to Australian Dollar Forecast – The Pound has started 2012 firmly on the back foot against the Australian Dollar

Pound Sterling to Australian Dollar Foreign Currency Exchange Rate Forecast - The Pound has started 2012 firmly on the back foot against the Australian DollarThere appears little hope that positive UK data releases will push the Pound higher against the Aussie in the coming week.

By John Cameron

Foreign Currency Market Update – GBP / AUD Update

The Pound has started 2012 firmly on the back foot against the Australian Dollar, sending the GBP AUD pair to a new multi-year low of 1.4712 on January 17th. Sterling rejected this level in the three sessions which followed the downward move, marking it a key level of support moving forward. The GBP AUD exchange rate has barely recovered in the week which has followed the new low, leaving the pair delicately poised. If upcoming global data releases are positive in tone and appetite for risk improves, then a break down through the 1.4712 level of support can not be ruled out. Consecutive closes below the level would send out a strongly negative signal for the pair. Conversely, if market participants get a renewed attack of the jitters, perhaps because of bad news emanating from the eurozone regarding the region’s debt crisis, then it is possible that the GBP AUD exchange rate will improve and settle back above the 1.5000 level, with August’s 10-month high of 1.6390 providing a medium-term target.

Last Week

Last week’s session provided further evidence that the UK’s real economy remains under pressure, as the British government’s austerity measures start to kick in with a vengeance. Last Wednesday’s official UK Unemployment data provided grim reading for investors holding Sterling-denominated assets. The numbers showed that British joblessness had risen by some 118,000 in the three months to the end of November, 2011, sending UK Unemployment to 2.68m – its highest level for 17 years. Bank of England Monetary Policy Committee member, Adam Posen, added fuel to the fire earlier this week by stating that British unemployment was set to increase steadily over the next two years due to a process of rationalisation, as firms in unproductive sectors of the UK economy jettison unneeded workers. The mood of gloom regarding the state of Britain’s economy was increased by last Monday’s release of a report by the Ernst Young ITEM Club, a widely-respected independent think-tank which uses the UK Treasury’s economic model to forecast key economic indicators. The ITEM Club predicted that Britain’s economy contracted in the last quarter of 2011 and will show further contraction in the first three months of 2012, meaning that the UK is entering a double-dip recession.

Heads Up

*Denotes the importance of the data item *** being the highest level.

***Preliminary estimate of Q4 GDP is out on Wednesday (09:30) with markets looking for a 0.1% contraction quarter on quarter, and 0.8% annualised growth
**Bank of England minutes from the last meeting are out at the same time as the GDP data. The market will be looking for any changes in the panel’s interest rate bias and comment on the size of the asset purchase facility (otherwise known as quantitative easing).

***Australian CPI Inflation data for Q4 2011, released in the early hours of Wednesday morning

Outlook

There appears little hope that positive UK data releases will push the Pound higher against the Aussie in the coming week. A more likely scenario for an improvement to the GBP AUD exchange rate would be a drop-off in global appetite for risk. Two ongoing situations have the potential to provide such a shift out of risk – the fallout from the current Iranian oil embargo and the eurogroup’s ongoing failure to agree a deal with Greece’s creditors.

The EU’s embargo on the Iranian oil industry, which was announced yesterday, was intended to provide a statement of intent that the West will not tolerate Iran’s continuing nuclear programme. Iran’s immediate response to the embargo was to threaten to close the strait of Hormuz, through which one fifth of the world’s oil supply passes. Such an action would have a pronounced negative effect on global economic activity, potentially causing a sharp weakening of the AUD.

Meanwhile, global stock markets are down on the day today due to the eurogroup’s ongoing failure to agree an agreement with Greece’s creditors on a settlement for sums owed. The institutional investors who are owed money are holding out for a 4% yield on the new long-term Greek bonds which eurozone Finance Ministers have proposed, while the eurogroup, led by President Jean-Claude Juncker, appear in no mood to give way. If the impasse continues, then a mini-recovery is possible for the GBP AUD pair.

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