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Australian Dollar Research Report


Australia|Latest FX News|Technical Research
Published: Wednesday 10 May 2017
  • ​​Surpise Sterling success and a slip in Australian Dollar - interesting times ahead?
  • GBP-AUD likely to see some volatility in the next few 
  • Australia unlikely to make further interest rate cuts
By Alastair Sweetman  
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Theresa May calling the snap election helped boost the Pound and with the Conservative Party ahead by 22 points in the polls, that’s certainly supporting Sterling. The uncertainty of a general election will usually weaken a currency, but the unanimous nature of the polls suggesting a sizeable Tory majority and the repercussions for a stronger hand in the Brexit negotiations have benefitted the Pound. This week we have “Super Thursday” – so called because a large number of economic indicators for the UK are released on the same day:
 
  1. We’ll hear from the Bank of England (BoE), who will vote on interest rates; in the last meeting, one member of the Monetary Policy Committee (MPC) voted for an interest rate hike, which boosted the Pound. If there’s a change to the voting, and we more in favour of an interest rate increase, that will add strength to the Pound. On the other hand, if 9-0 committee members vote in favour of no change of interest rates, then expect the Pound to drop a little.
  2. The quarterly inflation report will also be released; this will be market moving and may well see the BoE downgrade growth forecasts for the UK for 2017 (currently forecast at 2.0%), which would weaken the Pound.
  3. Also featuring on “Super Thursday” will be UK manufacturing and industrial production data and trade balance figures. The forecasts are good, so that may counterbalance any Sterling weakness.

GBP-AUD likely to see some volatility in the next few days
 
With all this key economic data and potential for market movement, it may be worth converting a portion of GBP into AUD beforehand, just in case GBP falls back and signals a short term top on GBP-AUD.
 
Technically, GBP-AUD had been trading in the 1.5920 to 1.7170 range since October 2016, and so when the breakout happened last April, it was a decisive break. Currently, the Sterling-Australian Dollar exchange rate is heading up towards the next level of resistance at 1.7800 but this week’s slew of UK data may see the Pound stumble. On the daily and weekly charts, this currency pair is looking a bit overstretched, so it is possible that this rally could be exhausted. With this in mind, consider reducing your risk and/or trading a portion of your funds. 

 
Australian building approvals and retail sales data both came in below expectations 
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Australia unlikely to make further interest rate cuts
 
Over in Australia, the Reserve Bank of Australia (RBA) has left interest rates on hold at 1.5% in recent months and their policy statement remains neutral – it’s unlikely that they’ll cut interest rates any further. We anticipate that the next move could be higher but that may be sometime in 2018. What has triggered the fall in the Australian Dollar over the last two months is the drop in commodity prices, particularly iron ore – Australia’s largest export – and copper, which has meant the Australian Dollar is one of the worst performers of the year, thus far. Building approvals and retail sales data both came in below expectations, which added to the downward pressure on the AUD; but with the GBP-AUD currency pair looking overstretched and with traders focusing on the UK’s Super Thursday, the currency pair will likely tread water over the next couple of days.
 
Guidance for exchanging GBP-AUD
 
Hedging your bets is always a sensible strategy, particularly when there are warning signs that GBP-AUD may be topping out. You can take advantage of the current exchange rates by converting a portion of your funds on either a spot contract or fixing the rate for a later delivery on a forward contract with the view to converting more if and when GBP-AUD breaks through the next level of resistance at 1.7800.
 
 

For more information, infographics and the latest currency insights, visit www.halofinancial.com/blog
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