GBP/AUD Drops as AUD Strengthens
The Australian dollar has strengthened over the last few days as the global stock market rally has improved risk appetite, with investors moving away from traditional safe-havens and into higher yielding currencies; the Aussie dollar being one of them. The graph below shows GBP/AUD movement over the last 7 days.
GBP/AUD exchange rate graph
In an otherwise quiet week, the GBP/AUD was fairly volatile over the course of Tuesday, first falling around 0.75% before regaining most of the lost ground. The Australian dollar had been benefitting from increased demand as stock markets had begun to recover after a dismal start to the year. Risk appetite has therefore improved, with investors moving away from safe-havens and into higher yielding currencies. Even so, the difference between the highs and lows for GBP/AUD over the last 7 days is only around 1%; a fairly muted market by current standards.
Strong Chinese credit data has also leant the Aussie support, helping the Australian currency sustain trading levels around $2 to the pound. There is often a correlation between Chinese data and the strength of the Australian currency. Regular readers of this report will know of the link between the two countries; most of the iron ore Australia digs out of the ground is then subsequently shipped to China to fuel the vast manufacturing and industrial production industries. Softer Chinese data will often weaken the Australian dollar and strong data will strengthen it. Chinese demand is crucial to the health of the Australian economy in general.
On the other side of the cross, the pound has had a rough start to 2016. It now looks as though the Bank of England won’t be raising interest rates for at least another year, not before inflation returns to the Bank’s target level of 2%. Coupled with the uncertainty around the outcome of the proposed EU referendum, the pound has had its worst quarter in recent memory.
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