Although the more positive message of the Reserve Bank of Australia (RBA) had prompted a bullish Australian Dollar (AUD) run this has since been punctured by suggestions that the Fed could raise interest rates in April.
Comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens helped to boost the Australian Dollar (AUD) on Tuesday. While Stevens did acknowledge that scope remains for the RBA to cut interest rates where necessary, the more relaxed demeanour of the policymaker seemed to suggest that it would not be any time soon.
Consequently, in spite of the terror attacks in Brussels provoking a sharp rise in market risk aversion the ‘Aussie’ remained on a stronger footing across the board throughout Tuesday’s European session.
Confidence in Pound Sterling (GBP), meanwhile, was diminished further by the revelation that inflationary pressure in the UK had failed to pick up as expected in February. Clocking in at 0.3% rather than 0.4%, baseline inflation held steady on the month and offered no particular incentive for the Bank of England (BoE) to consider raising interest rates.
The ‘Aussie’ was unable to maintain its upwards momentum on Wednesday, however, as another member of the Federal Open Market Committee (FOMC) indicated a desire to see interest rates hiked in April. Philadelphia Fed President Patrick Harker does not hold a vote on monetary policy this year, but his hawkishness has nevertheless seen a marked rise in the US Dollar (USD).
With speculation that the Fed could resume its monetary tightening cycle sooner rather than later the appeal of commodity-correlated currencies has declined. Although it still seems likely that the RBA will remain on hold the possibility of an imminent Fed hike is nevertheless a point of concern.
Investors have remained rather reticent towards the Pound as the Brexit debate rages on, particularly as a recent poll by ComRes suggested that the lead of the ‘Remain’ camp has narrowed to its lowest level yet. In spite of this the softness of the antipodean currency has prevented the AUD/GBP exchange rate from making fresh gains as a result.
Before markets close for the Easter holiday the AUD/GBP exchange rate is expected to see some further volatility. During Thursday’s European session the Pound could return to a bearish trend if the UK’s February Retail Sales show the sharp decrease that traders anticipate. Weakening consumer spending would not bode well for the domestic economy, prompting further movement away from Sterling.
On the other hand, the ‘Aussie’ could achieve another bullish run if the latest US Durable Goods Orders figure sufficiently undermines talk of an imminent Fed rate hike. Forecasts suggest that orders slumped from 4.7% to -2.5% in February, a bearish signal that could dissuade policymakers from their increasingly hawkish bias.
At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was slumped around 0.53339, while the Pound Sterling to Australian Dollar (GBP/AUD) pairing was making gains in the region of 1.8720.
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