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Australian Dollar defies expectations

11 August 2016 by News Desk

Australian Dollar had hit a new two-and-a-half-year low by Thursday morning.

Australian DollarThe Australian Dollar has been bullish on commodity news and decent domestic news but the fact that GBP/AUD has extended its post-Brexit worst dashes hopes that Sterling would recover, according to currency specialists TorFX.

The Australian Dollar continued to defy market expectations and advance even when iron ore’s recent price rally seemingly ended. On Thursday, the Australian Dollar took advantage of the New Zealand Dollar’s RBNZ-influenced trade movements and continued to gain across the board.

New Zealand Dollar (NZD) – The New Zealand Dollar defied expectations on Thursday following the Reserve Bank of New Zealand’s (RBNZ) decision to cut New Zealand’s interest rate from 2.25% to 2.0%.

This move was largely expected by markets and had been priced into the value of the New Zealand Dollar following the sudden announcement of an RBNZ economic assessment a few weeks ago, with some investors even speculating of a cut to 1.75% due to the dovish nature of the economic assessment.

As the rate cut was only by 25 basis points, the ‘Kiwi’ soared following the news. Low demand for the ‘safe-haven’ US Dollar also allowed the New Zealand Dollar to advance, though it slipped from its best levels during Thursday’s European session as investors reassessed their positions.

Australian Dollar hits new low

Pound Sterling (GBP) – The Pound slumped across the board once again on Wednesday as the Bank of England’s (BoE) new quantitative easing measures hit a catch within its first week of action.

Private investors also purchased UK debt in anticipation of further QE, as comments from BoE officials have hinted that last week’s aggressive BoE stimulus package would be enhanced in the future. UK treasury debt yields fell to record lows, suggesting that gilt yields could continue falling in the coming months on further QE.

Investors’ reaction to this has been to purchase lots of UK debt before their yields drop further, but this will also make the issue worse going forward.

On the other hand, investors have been selling assets priced in Pounds as the profit on these investments is low. Sterling’s movement was muted on Thursday morning as the latest house price balance report from RICS disappointed by falling past the expected 6% to 5%.

US Dollar (USD) – The US Dollar plunged against most major currencies on Wednesday, but the ‘Cable’ exchange rate saw mixed movement due to low appeal in both the Pound and the Dollar.

Last week’s surge in Federal Reserve rate hike bets (thanks to a fantastic US Non-Farm Payroll report) has largely dissipated since, largely due to Tuesday’s confirmation that US productivity had contracted for the third consecutive quarter. A lack of optimistic comments from Fed officials has also caused investors to rethink their rate hike bets.

As a result, it is likely that GBP/USD’s losses have been minimised this week. However, this also means that there is plenty of potential for the pair to plunge in the coming weeks if Fed rate hike bets improve again. For now, USD investors look ahead to Friday’s retail sales report, as well as a speech from Fed Chairwoman Janet Yellen towards the end of August.

Euro (EUR) – The Pound to Euro exchange rate lost half a cent on Wednesday, hitting a new monthly low due to low investor appetite for the Pound and other UK investments. Sterling is unlikely to make a strong recovery anytime soon due to record-low returns on GBP-denominated assets.

The Euro, on the other hand, was sturdy throughout Wednesday on news that Portugal and Spain would not be given penalties for missing their deficit targets. The European Commission and Eurozone governments agreed to give the nations new fiscal targets instead, with the aim of reducing their deficits.

Canadian Dollar (CAD) – The Pound to Canadian Dollar exchange rate lost around a cent on Wednesday as Sterling slumped on low UK sentiment. The Canadian Dollar itself advanced on risk appetite.

While the US Dollar slightly regained strength on Thursday, demand for riskier currencies remained high.
Due to low oil prices, a high trade deficit and unemployment in Canada, the Canadian Dollar’s resilience against major currencies in 2016 has been impressive.

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