by Jon Beddell
Foreign Currency Market Update – GBP / AUD Update
The revised estimate of fourth quarter GDP showed a worse than expected contraction in the UK economy, 0.6% instead of the 0.5% originally announced. Investors were more focussed on the inflation and interest rate theme, which has seen expectations for a rate hike build over recent weeks as inflation remains stubbornly high. The minutes of the February meeting showed that a third MPC member joined the two who have been voting for a rate hike. One member even argued for an immediate 0.5% rise, and members who voted to hold rates acknowledged that the hawkish argument is gaining traction. Current market expectations are for a 0.25% rise in June, and further rise in the fourth quarter, with the base rate eventually reaching 2.5% by the end of 2012.
So far this week there has been no market moving UK data. House prices were up 0.3% in February according to Nationwide, slightly ahead of the 0.2% expected. Construction activity as measured by the Purchasing Managers Index increased more than expected. Next week (March 10th) we have the next interest rate decision from the Bank of England to look forward to.
The Reserve Bank of Australia kept interest rates on hold at 4.75% as expected on Tuesday. January retail sales grew 0.4% on the month, slightly ahead of expectations, and GDP growth for the fourth quarter was also slightly ahead of estimates at 0.7%. The nation’s trade surplus for January again exceeded the expected $1.56bn to come in at $1.87bn.
The unrest in North Africa has had a mixed impact on the commodity currencies. Generally when there is geopolitical uncertainty investors scurry for the safety of the US dollar and Japanese Yen. However, on the turmoil in Libya has caused a significant spike in gold and oil prices, thereby helping commodity based currencies like the Aussie dollar which rallied strongly into the end of last week.
The technical outlook is mixed. Sterling is still defending the 1.58 level, but is having trouble making progress above 1.62. That means we are effectively stuck in a holding pattern until one of these levels is decisively breached.
- Australian Dollar Foreign Currency Exchange Rate Forecast – North African Troubles Overshadow Inflation Debate…
- South African Rand Foreign Currency Exchange Rate Forecast – Sterling in freefall against strong Rand…
- Canadian Dollar Foreign Currency Exchange Rate Forecast – Revised estimate of fourth quarter GDP showed a worse than expected contraction…
- US Dollar Foreign Currency Exchange Rate Forecast – Sterling hits resistance
- New Zealand Dollar Foreign Currency Exchange Rate Forecast – Worse than expected contraction in the UK economy