FX082 TorFX Foreign Exchange - Australian Dollar Update
Market Update - GBP AUDIn our last update we made it very clear that sterling is far from being out of the woods. Nothing's changed since then as we continue to trade around the 1.80 level, and the trend is still very much for a stronger Aussie dollar and weaker pound. Share prices have rallied to new highs after last week's correction, helping the highs yielding currencies gain ground. Gold continues to soar to new all time highs on an almost daily basis, now trading at $1,168 per ounce, up 7% from when we sent our last report. The only thing holding the Australian currency back is the growing expectation that the Reserve Bank of Australia will keep interest rates on hold at 3.5% in December, although further rate hikes are expected in the New Year. The rate tightening cycle has been largely factored into the market already (as we saw from the lack of market reaction to the last rate hike) so it would take a surprise to send AUD sharply higher. The dominant theme will therefore be risk appetite and the carry trade. If stock markets keep marching higher we expect AUD to follow suit.
Balanced against these positives for AUD, we've had a very mixed bag of data for the pound over the last week. Public sector borrowing was far higher than expected for October (£11bn versus £7bn expected) and traders are still concerned that further quantitative easing may lie ahead after last week's Bank of England minutes revealed that one MPC member voted for a £40bn increase. On the plus side, inflation for October was a healthy 1.5%, and we are expecting a slight upward revision to the preliminary estimate of third quarter GDP tomorrow.
The technical outlook remains negative. At the moment there is every reason to believe that the last few weeks represent a mere pause in the downtrend, and that lower prices are in the post. Buyers of Australian currency should consider covering at least half if not all of their requirement at these levels. Those looking for a bounce should consider using a stop order to protect against renewed downside.
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Labels: aud-update
Posted at: 11:11
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