GBP AUD, GBP NZD & GBP CAD Rates Spiral

Published: Tuesday, 25 June 2013 09:00 BST - Written by James Fuller

STORY LINK GBP AUD, GBP NZD & GBP CAD Rates Spiral

The prevailing mood in the markets since last Wednesday’s US Federal Reserve announcement has been firmly ‘risk-off’. Global investors were paralysed with fear following the US central bank’s revelation that it would be cutting back on the $85bn per month which it currently allocates to its highly controversial asset purchase programme.

The closely-watched $VIX index, which gauges the number of protective ‘put’ orders which share traders are placing, registered a mammoth increase of 20% in the aftermath of the Fed statement. $VIX, which is sometimes referred to as the ‘Fear Index’, shows a strong negative correlation with high-yielding commodity-driven currencies including the Australian, New Zealand and Canadian Dollars, so there was little surprise when the GBP AUD, GBP NZD and GBP CAD exchange rates soared as the weekend approached.

The pall of gloom which hung over equities market participants at the end of last week grew thicker during yesterday’s Asian session following an assertion from the People’s Bank of China that it is set to continue tightening its monetary policy in the short to medium term. The announcement from China played on the same fears which Wednesday’s Fed statement tugged on – is the world economy in a robust enough condition to weather a widespread withdrawal of ‘cheap money’?

The answer to this rhetorical question will be played out in slow motion during coming months, but global equities markets have already given their knee-jerk verdict. The broad-ranging S&P 500 index in the US, which is considered to be a good bell weather for world equities markets in general, was trading to within spitting distance of its record high of 1,687 during last Wednesday’s morning session. The Fed policy statement precipitated a steep drop from Wednesday’s intraday high of 1,654 down to a 2-month low of 1,560 during yesterday’s North American session. The sharp loss of over 6% of its value suggests that investors are genuinely concerned regarding the ability of the world economy to prosper in a post-QE era. There could be further gains to come for GBP AUD, GBP NZD & GBP CAD.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Australian Dollar Forecasts Canadian Dollar Forecasts Daily Currency Forecasts