Latest Specific Currency Report - Sterling Vs. Aussie Dollar - 16/09/09
Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing ("QE") gave traders a reason to buy the pound for once. Unfortunately that reason was removed yesterday as Bank of England governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.
The Reserve Bank of Australia indicated that despite improving data, they are unlikely to move interest rates until February. The next move is expected to be up from the current 3% level.
Sterling plunged towards the 13 year lows against the Aussie yesterday as a result of King's comments. That level is 1.8750, last seen in May 1996. We could see a reaction from around that area, but clients should remain extremely cautious and consider covering at least half of any requirement now.
Latest Specific Currency Report - Sterling Vs. Aussie Dollar - 11/09/09
Sterling jumped yesterday after the Bank of England left interest rates unchanged at 0.5% and made no further increases to the quantitative easing programme. The pound has been on the back foot since last month's central bank meeting at which they raised QE from £125bn to £175bn.
The minutes of that meeting showed that three of the nine strong committee actually voted for a larger increase, putting the markets on notice that further increases were likely. More QE means more money in the system, effectively devaluing the pound against its peers. Traders reacted with relief, bidding the pound higher in the short time since the noon announcement. We will have to wait a few days for publication of the minutes of today's meeting to show how last month's 6-3 skew may have changed.
Meanwhile, the Australian dollar has remained generally well bid as gold continues to flirt with the key $1,000 per ounce mark. Stock markets are also performing well, keeping investor risk appetite buoyant and supportive of high yielding currencies. Strong bank lending data from China also helped the Aussie today.
While sterling's technical outlook against the Euro and US dollar have improved on yesterday's bounce, the Sterling/Aussie rate is still on shaky ground, and needs to do a lot more work to signal that a low may now be in place. A break above the lower trend resistance and then last week's high (1.9600) would be needed to give us reason to start believing in this rally. Clients with AUD requirements should remain cautious, and consider covering at least half at current levels.
Market Forecast - Sterling Vs. Aussie Dollar - 04/09/09
The spectre of further quantitative easing is still hanging over the pound, giving traders a green light to sell the currency. Data flow was also unsupportive, with a small upward revision in second quarter growth (up to - 0.7% from original estimate of - 0.8%) being more than offset by better growth data from Europe which showed economic expansion for France and Germany over the same period.
Comparatively speaking that leaves the UK clearly lagging, and that is being reflected in the Sterling/Euro exchange rate. Meanwhile, the Australian dollar is still generally well supported as investors seeking more risk and yield continue to buy the currency. That trend took a knock on Tuesday as the US stock market suffered its largest one day decline in 2 months, sending the Aussi dollar a couple of cents lower.
However, the markets stablised, and AUD is already clawing back those losses. Yet another tailwind for the Australian currency this week has been a strong rally in gold prices, with the precious metal now challenging the key $1,000 per ounce mark.
The down trend is clear to see, and there is no reason at this point to think that the pound's decline is coming to an end. Buyers of AUD should strongly consider hedging any exposure now to avoid further downside.
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