The Australian Dollar suffered a torrid time on the currency markets

Currency

Pound to Australian Dollar Exchange Rate Forecast - The Australian Dollar suffered a torrid time on the currency marketsMarket participants have increasingly factored-in a potential cut in Australian interest rates.

Foreign Currency Market Update – GBP / AUD Update

The Australian Dollar suffered a torrid time on the currency markets last week, losing almost 2% of its value against the Pound, which was the strongest performing major. This saw the GBP AUD exchange rate continue on its upward trajectory of the past six weeks, to break to 1.5484, its highest level since before Christmas.

There were two primary contributing factors to the move against the Aussie – the release of more disappointing economic data from China and a continued trimming of Australian interest rate expectations for the remainder of 2012, by institutional investors. The future performance of Australia’s economy is inextricably linked with levels of economic activity in China’s giant manufacturing and industrial sectors, due to Australia’s status as a major exporter of raw materials. This meant that Chinese data, released during last Tuesday’s Asian session, which pointed to a sharp contraction in Chinese industrial profits in February, hit the Aussie hard. It was the first time in three years that Chinese industrial profits had shown a monthly drop, providing further cause for concern regarding an apparent cooling in China’s economy, following a string of recent negative Chinese data releases.

Meanwhile, market participants have increasingly factored-in a potential cut in Australian interest rates, following recent comments by the Reserve Bank of Australia’s Governor, Glen Stevens, stating that he feels that the RBA may have to consider domestic rate cuts later this year, if economic circumstances dictate. Investors will learn more about the potential for such an action during tomorrow night’s Asian session, when the latest RBA interest rate decision is announced, along with a brief accompanying statement. The general consensus among analysts is that the RBA will opt to maintain Australian interest rates at their current level of 4.25%, however movements in Australian government bond prices at the end of last week suggested that there is a distinct possibility that the RBA will announce a surprise rate cut tomorrow. This would bring pronounced selling pressure for the Aussie, triggering a run at last week’s 3-month high of 1.5484 for GBP AUD.

Heads Up

Summary of major upcoming data releases that we think may move the market.

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