Which direction is the AUD heading as we end the trading week?

AUDGBP Starts the Week Higher After Jobs Slump

Sterling exchange rates have fallen a fraction in morning trading falling from the open of 1.56 to 1.555 at the time of writing. But what is likely to happen to finish of the trading week? For me the main data set for today and for those with an interest in the AUD whether it be buying or selling will be the US GDP data release set for 13:30BST this afternoon. Regular readers may find this an odd choice of data to affect the move of the Australian dollar but I will explain why below.

The US economy is the global barometer for investors and often used as a benchmark for investors risk appetite. The market is heavily driven by investors moves and the data at 13:30 will be keenly viewed. During times of greater economic certainty and an increase in global output you will find the move towards higher yielding currencies will often become more apparent, with Australian offering much higher interest rates than much of the rest of the developed world the currency is keenly viewed as an investment opportunity throught he use of a carry trade. Regular readers will be familiar with this trade but to explain in laymans terms it is the act of borrowing in a low yielding currency (JPY, CHF) to then invest in higher/riskier asset such as the AUD, NZD and ZAR – the idea being that the gain is made on the return of interest. Of course there are exchange rate risks involved and hence why during times of high market volatility it can often be avoided. My point to this is that of late the US has released some better data sets and should US output (GDP) be positive and better than expected, this may well cause an increase in global risk apetite and hence the move towards the carry trade – should this happen you could see the AUD strengthen as its demand increases, of course the reverse could happen should US GDP data be poor!!

To discuss my views or to talk about the market and your particular transfer in more detail then please email [email protected] or call 01494 787 478 and speak to Mike.