The Australian Dollar took a hammering in the currency markets

By on October 8th, 2012.
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The Australian Dollar took a hammering in the currency markets.

Foreign Currency Market Update – GBP / AUD Update

The Australian Dollar took a hammering in the currency markets during last week’s session, causing the GBP AUD exchange rate to spiral from the low 1.55s on Monday to touch 1.5884 by Friday. The shift out of ‘Aussie’-denominated assets began in earnest early on Tuesday morning, when the Reserve Bank of Australia surprised analysts by trimming its key lending rate from 3.50% to 3.25%. Glenn Stevens, the RBA Governor, blamed his Bank’s decision on the continued cooling of commodities prices and on mounting evidence that economic activity is slowing down in China. The next RBA policy announcement comes on 6th November, which also happens to be Melbourne Cup day; the coincidence has led investors to speculate that the RBA may use its next meeting to announce another rate cut in an attempt to boost the domestic ‘feel-good’ factor in time for Christmas.

Australian data releases during the remainder of last week heaped pressure on the Australian tender; Wednesday’s Trade Balance figure showed that Australia’s export-driven economy had racked up a massive trade deficit of AU$2.027bn during the month of August alone. This shocking number suggested that Australia’s extraction and manufacturing industries are beginning to creak under the pressure of the historically strong Aussie Dollar. Thursday’s weaker-than-anticipated domestic Retail Sales numbers for August provided further worrying news regarding the state of Australia’s economy.

Friday afternoon’s closely-watched US labour market data revealed an unexpected dip in the overall rate of unemployment in the world’s most-active economy, providing a rare piece of positive news for the risk-sensitive Australian Dollar. However, this morning’s announcement by the World Bank that it has lowered its 2012 growth forecast for China’s economy from 8.2% to 7.7%, came as another body blow for the Aussie, ensuring that the GBP AUD exchange rate begins the week firmly on the front foot. With global stock markets already trading in red figures and little in the way of tier one data releases to knock the pair off its current upward trajectory, a move towards May’s 12-month high of 1.6187 would appear a near-term possibility. However, if the GBP AUD exchange rate rejects rates in the 1.6000s and starts a technical move Southwards again, then August’s key interim floor of 1.4711 will quickly become a target once again.

Heads Up

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

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