The Australian Dollar to Pound exchange rate lost most of its August advances by the end of last week, as the market’s recent risk demand finally cooled, causing markets to sell the ‘Aussie’ from its best levels. Falling from Tuesday’s multi-year high of 0.5976, AUD/GBP lost almost two cents and was trending near a weekly low of 0.5790 during Friday’s European session.
The Australian Dollar’s recent bullishness appears to have been all used up as of last week, as the currency edged lower against most major rivals as the week drew to an end.
Multiple factors have led to this ‘Aussie’ selloff despite Australia’s solid economic news and low Reserve Bank of Australia (RBA) rate cut bets, including an end to the recent risk-on movement in markets.
After risky, high-yielding assets like the Australian Dollar surged earlier in August, investors sold these assets from their high levels in order to make profit.
The AUD/USD exchange rate reaching 0.77 cents appears to have been a key point of psychological resistance for the Australian Dollar. AUD/USD only briefly reached above this level at various points in August before being sold off, despite solid ‘Aussie’ demand.
The Australian Dollar was also weakened on Friday by news that credit rating group Moody’s had revised Australia’s credit rating outlook from stable to negative.
After multiple weeks of weakness, particularly following the Bank of England’s (BoE) recent monetary stimulus package announcements, Pound Sterling (GBP) exchange rates finally bounced back last week and were able to sustain gains against multiple major rivals.
The Pound’s uptrend began on Tuesday, when investors took higher-than-expected UK inflation scores for July as an opportunity to buy the currency from its cheapest levels.
The rally continued on Thursday thanks to UK retail sales smashing forecasts in July. Monthly retail sales improved from -0.9% to 1.5%, and the yearly retail sales score improved from 3.9% to 5.4%.
Investors had readjusted their positions lower ahead of these key prints due to an expectation that these figures would show negative effects caused by the Brexit vote, but Sterling surged when they didn’t.
It was the weakness in the Australian Dollar that allowed Sterling to capitalise on Friday however, as the UK’s public sector net borrowing wasn’t entirely impressive and led to lower deficit forecasts.
Next week’s economic calendars for Australia and Britain are relatively quiet, giving AUD/GBP the opportunity to move in response to global market sentiment.
If the US Dollar weakens again or if there is particularly impressive commodity-correlated news, it could be an ideal opportunity for the Australian Dollar to resume its early August rally. This could even see AUD/GBP regain much of this week’s lost ground.
The only influential Australian data due this week is a Q2 construction work report, and for Britain the most notable stat will likely be the BBA’s house purchase report due on Wednesday.
While Friday will see the publication of typically-anticipated Q2 UK growth figures, worries that the Brexit vote has caused a negative shift in economic momentum have caused pre-Referendum data to lose influence.
As a result, AUD/GBP will likely continue edging lower if the ‘Aussie’ selloff continues. However, good Australian economic news and low RBA rate cut bets due to a surprisingly hawkish tone after its last rate cut means the ‘Aussie’ is in a good position to recover, markets permitting.
Sterling, on the other hand, may not advance much further even if the Australian Dollar continues to plummet, as bets that the Bank of England (BoE) could expand easing measures further in September will weigh on its ability to climb too high.
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