Aussie currency market update

06 July 2016 by News Desk   |   SHARE  

The Aussie Dollar undulated wildly against Sterling driven by uncertainty and speculation according to this currency market update from financial specialists TorFX.

Currency market update – For travellers and investors watching the Aussie Dollar here’s a guide to Pound-Dollar movements during market trading on July 5.

The Aussie Dollar and the UK Pound enjoyed several ‘dead cat’ bounces towards the end of last week, with the Pound seemingly immune to the multiple headwinds facing it.

The Australian Dollar was largely in the grip of market sentiment over the past few days. Speculation over how the Reserve Bank of Australia (RBA) would act at the next policy meeting also weighed on the ‘Aussie’.

Markets are largely agreed that the official cash rate will be cut at least once over the coming year, with many expecting rates will be slashed to 1% over the next few months.

However, analysts were divided over whether or not the RBA would choose to cut policy immediately after the UK’s ‘Brexit’ decision or if it would delay.

Australian currency market update

GBP AUD began the day in a position of weakness, although speculation of further easing from the Reserve Bank of Australia (RBA) weighed on the ‘Aussie’.

The RBA may have held rates at 1.75% and made no explicit suggestions of holding an easing bias, but investors were still betting on further cuts.

Analysts interpreted comments on the need to await ‘further information’ as referring to the next consumer price index release, due at the end of July.

The RBA has a history of cutting after inflation data is released, so this only stoked expectations of looser monetary policy, weakening the Australian Dollar.

Wednesday’s ISM Non-Manufacturing Composite index could benefit GBP AUD if it strengthens the US Dollar, thereby weakening the ‘Aussie’.

Australian data for the rest of the week is sparse, with Thursday’s AiG Performance of Construction Index for June likely to be the most impactful.

Currency market update – The Pound

The Pound was on a weaker footing, however, thanks to the approach of the Bank of England’s Financial Stability Report.

Investors pulled out of the Pound ahead of the release on expectations of a dovish assessment of the UK’s financial situation.

When the report was released, markets were cheered by the news that the BoE intended to relax capital restrictions on UK banks to allow them to lend more money. While the report highlighted many risks, it also reaffirmed that the Monetary Policy Committee (MPC) was ready and prepared to counteract them.

This bolstered market confidence. However, the Pound’s attempts to erase losses quickly floundered and turned back into a decline as a Commons Treasury Committee on the Brexit got underway.

Adding headwinds to the Pound were comments from University of Liverpool Professor of European Law Michael Dougan who highlighted how difficult it would be for UK to secure a ‘Norway style’ trade deal with the EU.

Any proposed agreement can be vetoed by 32 different parties, including the 27 EU countries, the Swiss and the European Parliament.

Thursday 6th July will see release of UK industrial and manufacturing production statistics, as well as the NIESR GDP estimate.

Friday’s UK data will likely have more clout. May’s trade figures are expected to show that the trade deficit widened from -£3.29 billion to -£3.57 billion. Considering the BoE today highlighted the UK’s current account as a major risk to stability following the UK’s vote to leave the European Union, a widening trade deficit will weaken investor sentiment.

For a detailed currency market update contact currency specialists TorFX

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