The Australian Dollar to Pound exchange rate made a more solid recovery on Tuesday as the Reserve Bank of Australia (RBA) policy decision to freeze interest rates left the ‘Aussie’ bullish. During Tuesday’s European session, AUD/GBP fluctuated around 0.5700, briefly hitting highs of 0.5736.
The Australian Dollar finally took its opportunity to advance on this week’s fresh demand for risk-correlated currencies on Tuesday, as investors relaxed following the Reserve Bank of Australia’s (RBA) September policy meeting.
Tuesday’s ‘Aussie’ rally actually began shortly before the RBA meeting due to expectations that the bank wouldn’t be delivering any expansions to easing policy during outgoing Governor Glenn Stevens’ final meeting.
Following the meeting, a familiar stance from Stevens was reported, indicating that little had changed since the last meeting. The Australian reported;
‘No forward guidance was offered, with the central bank taking its closing statement almost exclusively from the June meeting. …
The only alteration to the June meeting was the obvious need to reference the August cut and points to a central bank that is content to keep its options open.’
The ‘Aussie’ was also boosted by decent domestic data, as well as last week’s drop in demand for the US Dollar. After a slew of disappointing US data, investors began to look for higher-yielding risk-correlated currencies like the ‘Aussie’ in order to make profit.
Sterling attempted to push the Australian Dollar down on Monday due to a surprisingly strong UK August Services PMI from Markit.
Following last week’s report of surprising growth in Britain’s Manufacturing sector in August, as well as a smaller-than-expected contraction in Construction, the PMI for Britain’s biggest sector impressed when it was published on Monday.
Services were expected to make a slight improvement in August due to a positive trend in August stats, but July’s contraction of 47.4 was beaten by a leap to 52.9. This brought the Composite score up from 47.5 to a solid 53.6.
The news was enough to cause investors to ease worries of further Bank of England (BoE) stimulus measures in coming months due to a perceived smaller chance of Britain entering recession during Q3 2016.
However, August’s rebound may not be continued in September and July’s figures were still dire, making markets speculate that Britain’s economy could simply stagnate through Q3.
The Australian Dollar could continue to trend with a strong bias if risk-sentiment remains high, but this depends on the appeal of the US Dollar as well as the perceived strength of the current risk-rally.
Various factors including prices of commodities also affect risk-sentiment. As such, the Australian Dollar could hold its ground and even continue its advance if commodities increase in price.
Prices of iron ore, Australia’s primary commodity, have fluctuated in recent weeks making them unlikely to inspire an ‘Aussie’ rally unless a more inspired movement occurs.
The ‘Aussie’ could also experience a strong boost if Q2’s Gross Domestic Product (GDP) report beats expectations when it publishes this morning. Quarterly growth is expected to score 0.4%, with yearly growth improving from 3.1% to 3.2%.
However, Sterling could hold its ground and even advance against the Australian Dollar during Wednesday’s European session if NIESR’s August GDP estimate impresses.
A score of over 0.1% would improve hopes that Britain will avoid a pre-Brexit recession, as well as lower Bank of England (BoE) easing bets. However, a score of 0.0% or a contracting score would send Sterling plummeting.
At the time of writing, the Australian Dollar to Pound exchange rate trended in the region of 0.5696, while the Pound to Australian Dollar exchange rate traded at around 1.7557.
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