Two-Month Best Pound to Australian Dollar Rate Could Improve but AUD Driven by US Rates, FED

September 16, 2017 - Written by John Cameron

STORY LINK Two-Month Best Pound to Australian Dollar Rate Could Improve but AUD Driven by US Rates, FED

The Pound to Australian Dollar exchange rate traded at the best price in two months last week, entering the weekend quoted at 1.69854.

Analysts at Credit Agricole, in a piece highlighting the keythemes & trades this week, suggest "further currency upside risk cannot be ruled out should incoming data make a case for it."

The Australian dollar "continues to be strongly driven by US rates and any perceived dovishness on the part of the Fed will likely be jumped on as a reason to buy the AUD and enter carry trades."

"The AUD was sold last week, despite more supported central bank rate expectations as driven by the central bank’s more positive stance with respect to growth. Hence, speculative-oriented investors started to take profit. However, overall long positioning remains elevated and that suggests position-squaring-related downside risks will continue." Credit Agricole

The British Pound Soars as BoE Hints towards Upcoming Rate Hike

The Pound had a spectacular session last week, jumping around five cents against the Australian Dollar after speculation of an impending rate hike from the BoE skyrocketed.

After drifting slightly higher on Monday Sterling first real gains came on Tuesday as the Office for National Statistics (ONS) reported that the UK’s inflation rate leapt from 2.6% to 2.9% in August, outpacing expectations it would only reach 2.8% and matching the four-year high struck in May.

Sterling did suffer a slight set back on Wednesday however as investors were left a little dismayed by the UK’s latest employment data.

While the ONS revealed that unemployment fell from 4.4% to 4.3% in July, the accompanying average earnings reported showed that wage growth remained flat at 2.1%, disappointing traders who had expected it to rise to 2.3% and prompting concerns about the growing gap between wages and inflation.

Thursday brought the most notable gains for the Pound last week as an unexpectedly hawkish BoE monetary policy meeting drove speculation that the bank was shifting towards making a possible rate hike in the near future.

While the Monetary Policy Committee (MPC) still voted 7-2 last week to keep interest rates on hold in September a more upbeat outlook from the bank and comments from Governor Mark Carney saw investors flock to the Pound.

Sterling made one final push higher on Friday as BoE member Gertjan Vlieghe also suggested that a rate hike might not be too far away Which in the eyes of investors all by confirmed that a rate hike was inbound and led to markets to begin pricing in a November raise.

Vlieghe said in his speech on Friday, ‘If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in bank rate might be as early as in the coming months.’

Australian Dollar Struggles Due to Mixed Data

The Australian Dollar meanwhile struggled to find its feet last week following some mixed domestic data, with the ‘Aussie’ initial weakness being prompted by worse than expected business sentiment in August as NAB reported its confidence index plummeted from 12 to 5 last month.

A slight uptick in Westpac consumer confidence data also provided little lift for the ‘Aussie’ overnight on Tuesday as despite the rise, data showed that pessimists continued to outnumber optimists in September.

However the Australian Dollar did briefly manage to register some gains overnight on Wednesday as the Australian Bureau of Statistics (ABS) reported a sharp rise in the number of Australian’s entering work last month.

However the impressive jobs report was not enough to repel the Pound’s advance in the wake of latest BoE meeting, especially following North Koreas latest missile test on Friday, which caused markets to shy away from riskier currencies like the Australian Dollar.

GBP AUD Exchange Rate Forecast: Carney to Speak This Week

Looking ahead a speech by Mark Carney on Monday could push the GBP AUD exchange rate even higher at the start of this week, with investors expecting to hear more about the BoE’s plans for monetary policy and whether markets can expect a rate hike by the end of the year.

Meanwhile movement in the Australian Dollar this week will likely be dependent on the tone of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting, with any signal that the Bank’s outlook is becoming more upbeat likely to prompt the ‘Aussie’ to rally.

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