Latest Specific Currency Report Sterling Vs. Aussie Dollar - 26/01/10
Since our last update, in which we voiced a cautiously optimistic tone for sterling, things have continued to improve. The pound rebounded strongly after briefly touching record lows, helped in part by hawkish comments from Bank of England policy maker Andrew Sentance, prompting markets to start bringing forward expectations of a possible interest rate hike in the UK. Sterling's tailwind has been bolstered by talk of a +0.4% figure for fourth quarter GDP, but the figure came in at just 0.1% this morning, confirming that the country pulled out of recession at the end of 2009, but only by the finest of margins. Sterling has lost a cent on the news as disappointment sweeps the market.
The Aussie dollar has been on the back foot this week on reports that China's central bank will raise reserve ratios for several key lenders, effectively tightening monetary policy by reducing lending and raising the interest rates required by lenders. Also weighing on sentiment toward the high yielders is the dramatic stock market sell off seen over the last few days. If that trend continues and develops into panic, we could see severe weakness in currencies like AUD, NZD and the Rand. Buyers of these currencies should therefore be on alert for opportunities.
The technical outlook is mixed. We still have short term positive momentum backing the pound, but there are major technical resistance levels at 1.8375 and 1.8600. Buyers of the Aussie dollar hoping for a continued improvement should strongly consider placing a stop order to protect against a renewed slide. This is especially relevant given the recent rally.
Latest Specific Currency Report Sterling Vs. Aussie Dollar - 15/01/10
Sterling has seen a modest rebound after briefly touching record lows against the Aussie dollar on Monday. Last week's Bank of England meeting was a non event. The market wasn't expecting anything, and nothing happened! However, markets have given the pound the benefit of the doubt this week as hawkish comments from BoE policy maker Andrew Sentance and chatter from other analysts point toward the probability that the bank will halt the monetary easing measures that have so dogged the currency over the last few months.
Good news for the pound last week came in the form of retail sales data for December, which showed that total sales rose 6% on the year, hitting a four year high, with food and drink being particularly strong. There are concerns however that Today's Economic Data on January 26th will show an end to the spending splurge and a resumption of the more cautious consumer behaviour we saw through most of 2009.
A spate of firm data in Australia over the last week means that another interest rate hike is probably on the cards at the February 2nd meeting, pushing rates to 4%.
The encouraging thing for sterling is that after probing record lows this week, the market rallied as if to say there is no appetite for new downside. As we said in last week's update, much of the bad news is now reflected in sterling's historically low level, which means markets can be more reactive to positive data than the usual doom and gloom. There's still much work to be done though before we can confidently say we are out of the woods, and the twin clouds of QE and the general election are major hurdles. The minutes of the January BoE meeting will be the first clue as to the current outlook on QE, and could be a serious driver for sterling. They come out next Wednesday.
Latest Specific Currency Report Sterling Vs. Aussie Dollar - 07/01/10
In our last update of 2009 we reiterated the negative technical outlook for sterling, advocating a "buy now" approach in case of renewed downside for this exchange rate. Unfortunately that downside is now materialising and we are testing record lows as I type. From a technical perspective it appears that the last three months respite have been merely a correction, and that the down trend is now reasserting itself.
The Aussie dollar was buoyed by a series of interest rate hikes in the last quarter of the year, bringing their benchmark rate to 3.75% in December. While that may not be "high yield" in comparison to rates a few years ago, it is enough to attract serious investment flows and carry trade interest, and that, along with the fact the Australian economy has performed far better than ours, is helping to underpin the continued rally in their currency. That's not to mention the fact that gold is still close to all time highs and oil is now embarking on another big surge.
The next key data for sterling will come out of today's BoE meeting and any actions the bank take over the next few weeks to clarify the position on quantitative easing. Will they continue to print money and support the gilt market for another few months, or will we be seeing talk of exit strategies, and if so, what effect will that have on sterling? Continued QE would almost certainly undermine the pound further unless it is accompanied by a clear road map pointing the way towards an exit, but an end to QE now could threaten the fragile recovery. We are stuck between a rock and a hard place, which is largely reflected in the current level of sterling, but given the overwhelming tailwinds for AUD we still advise a cautious approach to this market. That would suggest covering any AUD requirement now.
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