Has the Australian Dollar Reached an Inflection Point v the Pound Sterling?

February 27, 2015 - Written by John Cameron

STORY LINK Has the Australian Dollar Reached an Inflection Point v the Pound Sterling?

The Pound Sterling reached its highest level against the Australian Dollar for over five years during the second week of this month. The GBP AUD exchange rate briefly breached the two to one level, topping out at 2.0032 on 12th February as investors began to fret that Greece’s newly elected radical left-wing Syriza-led government might not be able to arrange a lengthening of its €240bn emergency line of credit with the EU / ECB / IMF ‘Troika’.

Tensions in Ukraine added to the selling pressure on the risk-driven Aussie, as did the widely-held view amongst analysts that the Reserve Bank of Australia might be set for a second near-term interest rate cut aimed at protecting Australia’s commodity-driven economy from the near-term downward move in the wholesale price of raw materials.

In the end, investors needn’t have worried – Tuesday’s session saw the eurogroup of Finance Ministers announce that they had agreed to Greece’s raft of economic reforms which the debt-addled Hellenic state had been ordered to propose in order to qualify for an extension on its emergency loans. Global market participants breathed a heavy sigh of relief at the announcement – only a few short weeks ago, it had appeared a live possibility that the eurozone might be facing a catastrophic break-up.

Meanwhile, on the other side of the coin, the Pound Sterling has performed no more than moderately in the markets during the past two weeks. Yesterday’s figures from the Office of National Statistics revealed that the level of business investment in the UK had fallen for the second quarter in succession during the final three months of last year. The quarterly drop in the level of spending by UK enterprises was its largest for over five years, leading analysts to suggest that the tentative UK economic recovery may be stalling.

The upshot of all of these factors has seen the Pound Sterling Australian Dollar exchange rate drop to as low as 1.9628 GBP AUD during trading yesterday. The pair now appears to have convincingly left behind the two to one threshold, causing many market commentators to forecast that the multi-year high of 12th February marks an inflection point for GBP AUD.

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TAGS: Australian Dollar Forecasts Currency Predictions Pound Aus Forecasts