The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate strengthened by around 0.35% on Monday morning.
As investors speculate as to how the European Central Bank will proceed with their intended bond-buying programme, the shared currency strengthened as many fear the downtrend was overdone. Having priced-in an aggressive programme of quantitative easing, fears that German opposition will lead to an insufficient opening amount caused the shared currency to recover some of its losses. A stronger Euro means less profitable trade for Australia.
The Pound, meanwhile, is trending higher versus most of its major peers after domestic data printed positively. House Prices rose on both a monthly and yearly basis in January.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trending in the region of 1.8476.
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate experienced volatility last week as the currency pair was rocked by fluctuating commodity prices and increased demand for higher yielding assets following the Swiss National Banks shock move to ditch its cap with the Euro.
The GBP/AUD exchange rate traded in a narrow range throughout the week as at times the ‘Aussie’ was weakened by falling iron ore prices and concern over the global economy and then found support from positive domestic data and increased demand for higher yielding assets.
Although iron ore prices recovered slightly towards the close of the week, prices are forecast to struggle in the weeks ahead. UBS economists noted; ‘The iron ore battle for market share will renew in 2015. Demand growth again looks likely to remain anaemic, outstripped by supply growth from the three majors, Minas-Rio and Roy Hil.’
On Thursday, the currency strengthened as the SNB’s announcement spooked the markets and send investors flocking out of Europe to seek higher yielding assets elsewhere. As Australia has one of the highest interest rates among developed economies many investors favoured the ‘Aussie’.
ECB Meeting to Dominate Attention
At the start of next week, the Aussie could receive some support from motor vehicle sales data. Overall, though the session is set to be a quiet one due to a lack of market moving data releases from the UK and USA.
On Tuesday, a number of major data reports are due out of China. Gross Domestic Product in the world’s second largest economy and Australia’s largest trading partner is forecast to have softened on both a quarter on quarter basis and annual basis. Also due is industrial production and retail sales reports, which are forecast to show improvement. On the same day, the ‘Aussie’ could move higher if Westpac Consumer Confidence data shows an improvement in January. Confidence is expected to rise from 91.1 to 96.5.
Sterling could make gains if unemployment data comes in strongly and average earnings data shows that wages increased in November. Also due is the policy meeting minutes from the Bank of England’s December policy meeting, economists will be looking for signs that a run of soft domestic data has caused economists to shy away from hiking interest rates until 2016 at the earliest.
The main event for next week is the European Central Banks January policy meeting on Thursday. Economists are expecting the bank to announce a full-scale quantitative easing programme. If such a programme is announced then we can expect the Australian Dollar to make further gains as more traders seek out higher yielding assets. The Pound too could find some support from such a move.
Friday will see the release of UK Retail sales.
The Australian Dollar’s movements will also depend on the commodity markets, in particular the movement of iron ore prices.
With commodity markets and the ECB policy meeting in focus the US currency is likely to receive support from haven demand, which could affect movements in the GBP/AUD exchange rate.
On Sunday the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was trending in the region of 1.8390
