GBP/AUD Settles Around 1.95

GBP/AUD Trades Flat

The dust seems to have settled after the interest rate cut announced by the Reserve Bank of Australia last Tuesday, with GBP/AUD settling around 1.95, not far off a five and a half year high. The graph below shows GBP/AUD movement over the last 7 days, with the reaction from the interest rate cut clear to see.

GBP/AUD 7 Days

The Aussie dollar has had a tough time of late, dropping significantly against both the US dollar and the pound, now trading at five and a half year lows against both currencies. The Aussie’s woes were compounded on Friday as the US published better than expected non-farm payrolls figures, rising to 257,000 for January.

Chinese import data on the weekend also sent the Aussie dollar lower, with imports crashing 19.9% from a year earlier, the lowest drop in five years. The figures were much worse than expected, with analysts forecasting only a 3.2% fall, blaming lower commodities prices and weak domestic demand for the greater than expected drop. Chinese exports also fell 3.3%, leaving the world’s second largest economy with a record $60billion trade surplus. Chinese data often affects the strength of the Australian dollar, with China being Australia’s most important trading partner.

“It’s pretty clear that the weakness in Chinese imports is serving as a drag on sentiment for Australia,…this will be taken as an indication of softer domestic demand in China, which threatens fallout in Australia via the commodities channel. Given how large the miss that we saw with those imports versus expectations, that will help to pressure the Aussie going forward,” said Citibank currency strategist in Singapore, Todd Elmer.

After the Australian interest rate cut, analysts are expecting movement in the Aussie dollar to be determined by foreign rather than domestic data. Inflation figures from China on Tuesday may further weaken the Australian currency. However, the data is expected to be soft so that may already be priced into the market.

There’s not much to report on the sterling side of the cross. The pound is performing well against the Aussie and is also trading near a 7 year high against the euro. The next movement in the pound will come with the next release of inflation figures as this may reveal clues as to when the Bank of England will look to raise interest rates. With most central banks actually loosening monetary policy at the moment, an interest rate rise seems a long way off.

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