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2016

Australian Dollar Research Report

Published: Monday 07 November 2016

  • Australian Dollar continues to strengthen against Sterling
  • Sterling strengthens following High Court Brexit Ruling 
  • Upcoming US Presidential Election likely to cause volatility
For Sterling, the big news is that the High Court ruled that the MPs have to vote on the triggering of Article 50 in the House of Commons. This saw the Pound rally over 1.5% against the Australian Dollar in a day. There is an appeal in progress and the final decision will be announced in early December 2016. While we wait for this development, we imagine GBP-AUD will likely remain range bound around the mid-1.60s. Looking ahead, if the Ruling on Brexit is overturned before Christmas 2016, then the 2011/2012 lows of 1.50 should come much closer into view.

The Australian Dollar has continued to strengthen against the Pound over the course of recent weeks. There have been a number of key fundamental factors that have caused that continued strength. The Reserve Bank of Australia (RBA) kept interest rates on hold at the 1.5% level. Strong labour figures – in particular the high iron ore prices – were seen as the key factor for interest rates being held and for the accompanying bullish statement from the RBA. Australia’s trade deficit should narrow as raw minerals become more expensive and this points towards growth in Australia’s Gross Domestic Product (GDP). All of this, in addition to the solid data coming from China, should see the Australian Dollar maintain its strength – and not just for the short term.

The US Presidential Election in the second week of November should cause volatility. Financial and currency markets have reacted to news of a Clinton victory, as expected, by maintaining the status quo. A Trump victory will affect risk appetite. However, at the moment, it is very tricky to predict how this will affect the GBP-AUD rate, as the USD may become a safe haven in the aftermath of a Trump victory, but Trump’s protectionist rhetoric has worried markets and we might see the odd combination of falling share prices and a falling USD if he were to win. Anyone with a short term requirement should ring their currency consultant in advance of the election and look to place orders so they can be ready for the likely market movements early on Wednesday 9th November.

Planning to buy or sell Australian Dollars in the current market?


In general, there is not a huge amount of upside in the Pound at the moment, so any opportunity to take advantage of a spike in the Sterling – Australian Dollar exchange rate should be taken. Realistically, orders at 1.70 on the upside for the Pound are likely the best bet. A spike to this level ought to attract a lot of Australian Dollar buyers. Due to the strong data from Australia and the continued uncertainty surrounding Brexit, a stop loss at 1.60 looks to be sensible to protect against another sudden fall in this pair.
  

Australian Dollar Research Report compiled by Alastair Sweetman

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