AUD/GBP has experienced massive gains throughout 2016, but this ‘Aussie’ rally may not continue after Reserve Bank of Australia (RBA) minutes detailed overvaluation concerns.
Investor confidence towards the Australian Dollar may be seeping away this week after AUD/GBP touched its highest point since November 2014, 0.5458, last Thursday.
After plummeting to a low of 0.5350 when markets opened this week, the ‘Aussie’ has recovered some losses, but at the time of writing, AUD/GBP was down around -0.2%.
Various factors account for AUD’s losses, including the severe blow to oil price futures dealt after OPEC failed to agree to a production cap during Sunday’s Doha meeting. Oil has weighed on commodity-correlated currencies and risk sentiment since prices worsened in 2015.
The ‘Aussie’ largely recovered due to an oil workers’ strike hitting oil production and improving prices (as reported by Bloomberg) although minutes released by the Reserve Bank of Australia (RBA) on Tuesday seem to have weighed on investors’ minds.
While RBA Governor Glenn Stevens confirmed that he and other policymakers weren’t in a hurry to cut rates, officials expressed heightened concern towards Australian Dollar’s exchange rates.
Citing healthy commodity news like iron ore price gains and Chinese trade data, as well as lengthy periods of an unappealing US Dollar, the AUD’s overvaluation may lead to bank action in the future. This weighed on ‘Aussie’ appetite.
Sterling has been at the mercy of its partners thus far this week due to a lack of domestic data, although the latest ‘Brexit’ news has certainly inspired movement for the currency.
The UK Treasury released a report on potential ‘Brexit’ effects on Monday. The report, headed by Chancellor George Osborne, warned that households would be worse off without European Union benefits and that funding for services like the NHS could be cut by as much as a third.
However, an ORB poll released by The Telegraph may have bolstered the Pound as it revealed a strengthening ‘Remain’ campaign.
The increase in voters wanting to stay in the EU has slightly eased the fears of some investors and allowed the Pound to appreciate.
Britain’s quiet data week is finally set to spring to life during today’s session as March’s jobless claimant reports and February’s 3-month employment prints are due for release on Wednesday.
Unemployment is currently forecast to remain stagnant at 5.1% and jobless claims are estimated to remain around 2.1%.
Differences from these projections will likely inspire GBP volatility, and if positive could allow it to take gains from the currently weak Australian Dollar.
Reserve Bank of Australia (RBA) Governor Glenn Stevens was due to speak in New York last night, and investors may spend Wednesday’s session reacting to his statements.
It’s also possible that the risk-sensitive ‘Aussie’ will experience cross-flow movement from Tuesday’s latest Dairy auction report as well as developments in Kuwait’s ongoing oil worker strike – which is expected to run for at least 10 days.
At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate traded around 0.5425, while the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate trended in the region of 1.8424.
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