GBP AUD, GBP NZD & GBP ZAR Exchange Rates Could Rise Following US Sequester Order

Published: Monday, 4 March 2013 09:00 BST - Written by Ben Hughes

STORY LINK GBP AUD, GBP NZD & GBP ZAR Exchange Rates Could Rise Following US Sequester Order

Just when things appeared to be improving for global equities market, infighting between America’s two leading political parties appears in danger of scuppering investor sentiment. The Dow Jones Industrial Average and the FTSE 100 had broken to new respective five year and four year highs in recent weeks, as share market participants bet that the good times would continue to roll thanks to the continuance of large ticket asset purchase schemes in the US, UK, eurozone and Japan.

However, the recent ‘risk on’ trading environment was placed in danger late on Friday night when US President Barack Obama signed a so-called ‘Sequester’ order, which he labelled ‘arbitrary’ and ‘dumb’. The edict was forced upon the American leader due to the lack of an agreement between Obama’s Democrat party and their political rivals the Republicans regarding how best to tackle the US’s massive budget deficit. The upshot will be some $85bn of spending cuts, which may place America’s tentative economic improvement of recent months in jeopardy.

The risk-sensitive Australian and New Zealand Dollars have ridden the wave of positive investor sentiment since the turn of the year, sending the Pound New Zealand Dollar exchange rate (currency : GBP NZD) to a new multi-decade high in the upper part of the 1.70s. The Pound Australian Dollar exchange rate has come within two cents of a new 28 year low within the past week, but such a move now appears a lot less likely given Friday’s news from the States.

Elsewhere, the recent downward move for the Pound South African Rand exchange rate (currency : GBP ZAR), which has seen the pair pull back from levels approaching the mid14.00s to trade down into the lower part of the 13.00s in the last few days, could also be reversed, if institutional investors opt to shift out of risk this week.

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