The Australian Dollar to Pound Sterling exchange rate firmed on Thursday as riskier commodity based assets found support from a rather dovish Federal Reserve policy meeting.
Those gains are forecast to be short-lived however, as concerns over falling commodity prices and geopolitical tensions remain.
The ‘Aussie’ strengthened against most of its most traded peers earlier in the session as the Federal Reserve policy meeting revealed that the world’s largest central bank remains cautious on when to increase interest rates. The policy meeting cased investors to speculate that the Fed has no plans to raise rates anytime soon with the most optimistic now not expecting a rate rise until April next year at the earliest.
The Federal Reserve chair, Janet Yellen, explained that “patient” meant the bank was unlikely to raise rates for “at least a couple of meetings”.
That would mean April next year at the earliest.
The dovish comments offered support to the ‘Aussie’ and other commodity and emerging market assets.
As the session progressed, the Pound began to recover earlier lost ground as domestic UK data buoyed the currency.
According to the Office for National Statistics (ONS), retail sales including fuel increased by 1.6% on a monthly basis to make the biggest increase of the year so far. Sales excluding fuel rose by 1.7% month on month. On an annual basis, sales excluding fuel jumped by 6.9% and with fuel rose by 6.4%.
‘The market was taken by surprise. Retail sales were extremely strong. However, markets aren’t anticipating an interest rate rise until 2016 and even strong data isn’t enough to change that,’ said Jane Foley, senior forex strategist at Rabobank.
The Australian Dollar is forecast to resume its downward trend against the Pound, US Dollar and other major peers as iron ore prices are expected to fall further.
Iron ore prices recently fell to the lowest levels in five years on signs that China, Australia’s largest trading partner, is experiencing a slowdown and sapping demand for the commodity.
China’s GDP growth outlook in 2015 was revised down from a forecast of 7.3% in March. Data released today also showed that new-home prices in China fell month on month in November in 67 out of 70 cities tracked by the country’s statistics bureau.
Also putting pressure on the ‘Aussie’ is positive data releases out of the USA. Consumer confidence in the nation increased last week to its highest level in seven weeks due to lower fuel prices.
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