Is the Australian Dollar overvalued? (Daniel Johnson)

Australian Dollar strengthens following positive Chinese inflation data

The Australian economy is currently performing well, and last night the Australian Dollar was given a further boost by positive inflation data out of China. Inflation rose significantly from 0.2% in December to 1% in January. Australia is heavy reliant on China buying it’s exports and positive data from China will cause Australian Dollar strength. Australian business confidence is currently at new highs according to the recent National Bank of Australia’s Business Survey so the outlook is positive. Keep an eye on unemployment data through the early hours as if there is any significant deviation from expectations we could see volatility on GBP/AUD.

Brexit  Bill

The House of Commons have now passed the exit bill and it is now to be handed to the House of Lords. Personally I feel the bill will now be passed without too much resistance. However there are three key topics to be debated over 48hrs commencing on 20th February. The following amendments are a possibility.

  • A guarantee that three million EU citizens residing in the UK will have their rights protected post-Brexit.
  • Parliament must be updated frequently on trade negotiations. A minimum of once every three months.
  • A guarantee that Parliament will be given the chance to vote on Theresa May’s final exit deal.

Any amendments have the potential to push back the triggering of Article 50. Any delay will result in Sterling weakness.

Keep an eye on UK Inflation

UK inflation is being watched closely at present as many analysts are predicting sharp rises in 2017. With the pound so weak in value, imports are now proving more expensive.  Inflation data came in weaker than expected yesterday which is surprising and slightly worrying. I seems that the increase in prices is yet to filter through to the consumer. Let us hope that when it does, it is not a huge, sharp rise, as wages will not be able to increase at the same rapid rate and the UK economy will suffer.

Trade Negotiations – The key Market mover on GBP/AUD – Where is GBP/AUD headed?

Despite the positive data coming out of Australia. I still feel the Pound is chronically undervalued. GBP/AUD is only at current levels due to the uncertainty surrounding trade negotiations following Brexit. Once Article 50 is triggered and there is more certainty with regards to trade negotiations I expect Sterling to rally. I would expect it to be slow and steady, but I am confident in Sterling strength.

It is important to remember where GBP/AUD sat in September 2015, 2.20, we are now at 1.62. The UK’s economic backbone is a strong one and I feel the Pound will gain on the Aussie after Article 50 has been invoked.

If you are buying Australian Dollars short term, you are in a difficult position. I would strongly consider getting in touch with an experienced broker to assist in maximising your trade return. If you would like my help please do get in touch by contacting me at dcj@currencies.co.uk.

If you have a currency provider in place, let me know the details of your trade and I will happily provide a comparison. I am confident I will provide a substantial saving. Thank you for reading and I look forward to hearing from you.

Daniel Johnson – Foreign Currency Direct

Senior Trader