After global equity markets ended a sustained rout, market sentiment went from damp to neutral. This allowed the Australian Dollar (AUD) to climb overnight from recent lows, but an absence of domestic data anchored the Oceanic currency.
As mentioned above, improved market sentiment caused the Australian Dollar to recover from lows seen in the face of risk-off trade. Ongoing uncertainty regarding the UK’s EU referendum has limited the appeal of high-yielding assets, however.
The neutral risk appetite seen during Friday’s European session is likely to be temporary. This is because it was initiated by suspended EU referendum campaigns following the tragic murder of British Lawmaker, Jo Cox. When campaigning resumes, however, market volatility and damp risk appetite is also likely to return.
‘Aussie’ (AUD) devaluation on safe-haven demand will be a welcome prospect for the Reserve Bank of Australia (RBA), especially now bets of a near-term Federal Reserve rate hike have been vastly reduced by disappointing ecostats and a dovish speech from Chairwoman Janet Yellen.
With a complete absence of domestic ecostats to provoke changes, the Pound was trending comparatively statically versus most of its peers during Friday’s European session.
The reduced Sterling volatility resulted from the suspension of EU referendum campaigns in light of the tragic killing of Labour MP Jo Cox.
With the referendum campaign set to heat up significantly over the coming week, however, most analysts expect implied Sterling volatility to reach record-high levels.
Traders will be highly reactionary to political developments, but the Pound is predicted to cede ground as uncertainty weighs on investor confidence.
If the UK votes to leave the EU the Pound is likely to lose significant value, with risk-correlated assets also predicted to take a hit as traders flock to safe-haven assets.
Given the importance of the EU referendum vote, domestic data across the board is expected to have a muted impact.
This will certainly be true of the British Pound, although the Bank of England’s (BoE) second additional ILTR operation to ensure UK banks can withstand the fallout of a ‘Brexit’ may cause Sterling volatility.
For those invested in the Australian Dollar one of those most significant publications will be Tuesday’s Reserve Bank of Australia (RBA) minutes from June’s interest rate decision.
Overnight the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending within the range of 0.5159 to 0.5189.
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