Pound rises to it’s highest rate in 6 months against a basket of currencies, Australian elections are uncertain, risk aversion still dominates the markets, Euro looks shaky, Canadian economy shows signs of faltering.
The Australian dollar fell one percent on Monday after the inconclusive election delivered a hung parliament. In early Pacific trade the Australian Dollar opened at $0.8840 from Friday’s close at $0.8940, a price gap of just over a cent against the American Dollar.
Something similar happened against the Pound which gapped just over a cent above Fridays close to 1.7500 GBP/AUD resistance. Neither Julia Gillard’s centre-left Labour Party nor the right-wing Liberal-led coalition of Tony Abbott gained enough votes to be declared outright victor which has left Australia without a clear government and nothing left but to start getting friendly with various independent and fringe parties.
“It is clear that neither party has earned the right to government in its own right,” Ms Gillard said. “It’s my intention to negotiate in good faith an effective agreement to form government.” The likelihood of Labour returning to government remained slim – the three independents re-elected are all ex-members of the Nationals, the Liberals’ coalition partner.
Markets were looking vulnerable even without the election uncertainty, because investors sought safety and turned away from risk on Friday amid weak stock markets and continuing concerns about the economic recovery. Australian stocks, which closed before the election, are seen as less likely to react unduly to the outcome.
In a familiar scenario to the UK elections recently there has been a recent shift away from Labour driven politics towards a reactionary right wing politics with the charismatic and big business friendly Tony Abbott looking more than likely to take up the reins of power in the next few days.
Mr Abbott’s coalition plans to ditch a 30 per cent profits tax on mining giants extracting the country’s mineral wealth which would have been ploughed by Labour into the education system. If he does manage to sweep to power the markets might well view it as a favorable outcome and there could be a similar rally to when David Cameron and his crew won over here earlier this year.
The end of last week saw a return to risk aversion as poor North American data saw many traders seeking the comfort of Dollar denominated paper, this theme could well be carried into this week. Sterling extended losses against the dollar on Friday, as investors sought refuge in safe-haven currencies like the yen and the Swiss Franc on growing concerns about a stuttering global recovery. However the pound has found some support today.
This week the pounds fortune is tied up with Fridays GDP revisions, but it has managed to hit a near eight-week high against a weaker Euro as the single currency underperformed on concerns about a fragile outlook for the euro zone economy. Traders said the euro fell below support at 81.65 pence, last week’s low, with stop loss orders triggered below 81.60 pence.
These gains helped lift the pound to a fresh one-year high against a basket of currencies of extending a peak hit on Friday. It has also risen against the dollar during morning trade up from the 1.5500 GBP/USD support which means the hard won upward trend is still intact.
The euro remained broadly under pressure, maintaining the negative tone from Friday, when comments by European Central Bank Governing council member Axel Weber that the ECB should extend its loose monetary stance dented the single currency.
“Euro/sterling went through some key levels and a move towards the 81.00 pence area looks likely, with the euro staying under pressure and broadly underperforming,” said Ian Stannard at BNP Paribas.
With very little data of any significance until Wednesday the Forex markets will rely heavily on previous trends for support.
Durable goods orders on Wednesday should act as a leading indicator on the state of the American economy and they are likely to mirror Canadian economic growth which slowed in July when sales of durable retail goods declined at a far greater pace than expected.