Snap Election is Catalyst for Sterling
The pound has gained strength Australian Dollar of late. The biggest movement came after the PM’s announcement that there would be an election in early June. A snap election should weaken the currency in question, but on this occasion the currency in question has strengthened. May’s move to call an election at this stage is a clever one, Sun Tzu would surely approve. Calling an election at this stage when the competition is so weak almost guarantees a conservative victory. The conservatives are deemed to be a far better option for the UK, this bolstered investor confidence and the value of Sterling. Despite the surge in pound strength, I am of the opinion sterling is undervalued against the Aussie. There are problems starting to appear in regards to the ever rising property prices in high salary areas such as Sydney and Melbourne. Some analyst believe the increases to be unsustainable, the problem is not seeming to go away with overseas investors willing to fork out over inflated prices for these properties.
The heavy reliance on China is also a cause for concern. It is extremely difficult to judge the true health of the Chinese economy due to the amount of debt in shadow banking. If growth continues to fall in China it will have an impact on the Australian economy due to the decreased need for raw materials. Chinese manufacturing figures are due out on Sunday during the night, I think there could be a drop which could benefit AUD buyers.
Buying Australian Dollars – When to move
If I was purchasing AUD short term, despite the fact there is room for further movement in my favour, I would be very tempted to take advantage of current buoyancy levels. When I trade, I move in tranches so I am not putting all my eggs in one basket. Trading a tranche on a seven month high, I would not consider to be a bad move.
Medium -Longer term a limit order may be my preferred option. A limit order is a useful contract if you are dealing in a currency in a different time zone. Data releases can come through during the early hours and you could miss an opportunity to move. A limit order lets you pick a target rate of exchange and should the market move to a position where your target becomes available the limit order will be triggered. If I had a three month time scale I would be looking at around 1.77-1.78, I think 1.80 could prove to be a resistance point.
Selling the Australian Dollar
I would not be procrastinating for small gains. I think 1.72 is still an incredible time to move based on GBP/AUD being above 2.20 pre-referendum announcement.
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