The Australian Dollar has steadily strengthened against the Pound

Foreign Currency Market Update – GBP / AUD Update

The Australian Dollar has steadily strengthened against the Pound since the start of last week’s session, sending the GBP AUD exchange rate down from close to 1.7400 into the 1.6800s earlier today. Last Tuesday morning’s decision by the Reserve Bank of Australia to maintain its official cash rate at 2.50% provided the Aussie with a boost given that a portion of market participants had been anticipating a pre-election rate cut. Market babble following the announcement suggested that the RBA may now have completed its rate-cutting cycle, for the time-being at least.

The early hours of Wednesday morning provided the Australian tender with another boost, when Q2 GDP data showed that the domestic economy had expended by a greater than anticipated annualised 2.6% during the three months to the end of June. The release suggested that the considerable weakening of the Australian Dollar which took place after mid-March’s visit to a 28-year low of 1.4381 for GBP AUD is starting to have a beneficial effect on the nation’s export industries.

Voting in Australia’s general election took place during the weekend market close and, as expected, the nation’s voters ushered in a new Liberal / National alliance government in a landslide victory. The reaction to the news when the markets re-opened on Sunday night was Aussie-positive, with coalition leader Tony Abbott’s declaration that Australia was once again ‘open for business’ receiving a firm ‘thumbs up’ from investors. Abbott has backed up his pro-business credentials by confirming that he will repeal a tax on mining profits and cut back on the red tape which many Australian’s claim is holding back economic progress.

The downward move which has followed Abbot’s victory has sent GBP AUD down to its lowest level for over a month today, but the near-term gains for the Aussie are by no means guaranteed to stick. This month’s much-anticipated US Federal Reserve FOMC meeting commences a week today, with an announcement due the next day. The possibility remains that the Fed may opt to begin trimming its Quantitative Easing programme, which analysts agree would harm the Aussie. A decision to begin tapering by the Fed could readily send GBP AUD up towards its near-term peak at 1.7485.

However, with it looking increasingly likely that the USA will decide against missile strikes against Syria and will instead opt for a diplomatic resolution involving the Damascus regime giving up its stocks of chemical weapons, a continuation of the current near-term downtrend for GBP AUD would appear a live possibility. If the current move lower does persist, then expect GBP AUD to head downwards towards its 3 ½ month low at 1.6144.

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