Daily Archives: January 4, 2017
GBP/AUD rates have dropped below 1.70, with the AUD making inroads despite some positive Manufacturing & Construction data for Sterling this week.
The Pound has found a lot of resistance around the current levels and despite a move through the 1.70 threshold, it has retracted quickly and once again proves how fragile the UK economy remains in the minds of investors.
The Pound has recovered slightly over the past 24 hours but I would be wary about assuming that we will see an aggressive move up for sterling under current market conditions. We need to consider that the on-going Brexit scenario is likely to drive the markets and in particular Sterling’s value, for months if not years to come.
This will make any sustainable Sterling improvement hard to come by and for this reason I would not be prepared to sit back and gamble on where the Pound may be sitting after March, when Article 50 is finally triggered.
UK Prime Minister Theresa May has given little away in terms of how we will facilitate our exit from the EU and this means the market are having to second guess, whilst trying to prepare for almost any eventuality. This uncertainty is hardly likely to breed confidence in the UK economy and as a result Sterling’s value is likely to be restricted.
However, this does not mean that those clients holding AUD should assume that GBP/AUD rates will plummet, as much of this negative feeling has been factored into the current exchange rates. The Australian economy is facing problems of its own and with a downturn in economic data and growth forecasts for this year and 2018 being squeezed, there is, in my opinion too much uncertainty to gamble on a move back towards 1.60.
We also need to consider the fact that the AUD is a commodity based currency and as such, is heavily reliant on the global economy performing well. Any downturns can have severe consequences on the currency in question, which is one of the reasons we see bigger swings on GBP/AUD than we would against some of the other major currencies.
Looking ahead and we have Services data out for the UK tomorrow, which could have an impact on the rates depending on whether the figure released is outside of the expected remit. There is also Trade balance figures and Import/Export data released on Friday in Australia, so expect further movement on GBP/AUD rates before the week is out.
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Is the Australian Dollar still attractive to investors?
The Australian Dollar had a good year in 2016, particularly against the pound. The question is will this trend continue? Personally,I think Sterling is chronically undervalued against the Australian Dollar. The only reason GBP/AUD sits just below 1.70 is due to the electorates vote to leave the EU.
I think the Australian economy could be in for a rough time this year. This is due to several factors. Firstly, we have to look at the the Australian Dollar’s appeal to an investor. With high rates of interest and Australia having a AAA credit rating the currency has been very attractive in the past, however below par economic data could cause Australia to lose this rating. The mining sector has been particularly hard hit and unemployment is on the rise.
The situation in the US will not help matters. The US economy is in a state of growth and the majority of economic data is positive. Now the uncertainty surrounding the Presidency has been removed I would expect the US Dollar to move from strength to strength. The FED have indicated there could be as many as three rate hikes in 2017 following the recent hike in December. The US Dollar is now a safer haven than the Australian Dollar and also has higher returns than before.
It would be wise to keep an eye on Chinese growth statistics if you have a trade involving the Australian Dollar. China is the largest importer of Australian goods and raw materials and as such Chinese data can heavily influence Australian Dollar exchange rates. Although China’s growth is still very healthy it is dwindling compared to previous years and I would expect growth to continue to slow, especially if Trump gets his way on restricting trade between the US and China.
If you have a currency requirement it is wise to be in touch with an experienced broker to assist in maximising the return on your trade. I will be happy to help. I will not only assist in timing your trade by providing an individual trading strategy, but also provide a comparison against your current provider to demonstrate the value of using me as your broker. Please do get in touch by contacting me at email@example.com. Be sure to specify the specifics of your requirement including your time scale. Thank you for reading my blog.