17th June 2014

Australian Dollar softer against Pound


Australian dollar exchange rate

Tuesday sees the Australian Dollar slightly softer against the Pound (AUD/GBP = 0.5503) however it remains strong against the US Dollar despite the risk of commodity-driven assets becoming less attractive to investors. Speculation surrounding China’s slowing economy and the recent drop in iron ore prices—Australia’s largest export—could mean the AU Dollar is destined for a fall in the currency market.

Speculation by Lloyds bank that the value of the ‘Aussie’ will drop within the next two weeks may place pressure on the currency to maintain its strong position in the foreign exchange market. Lloyds Bank commented: ‘Weakness in key commodity prices is eroding a major area of support for the currency, but this is offset by relatively high interest rates. Cutbacks in mining investment and the public sector remain major headwinds.’


The Pound is still climbing following hints from the Bank of England’s Governor and Deputy Governor that the interest rate may be hiked by November. The Pound awaits the results of today’s consumer and retail price indexes, which will hopefully continue to boost Sterling if they come in at predicted levels.

The US consumer price index is also due to be released today, which could boost or weaken the US Dollar depending on the outcome. The Pound recently reached a five-year high against the US Dollar after breaching the GBP/USD 1.70 mark. Currently residing at 1.6978, the Pound looks set to remain steady against the US Dollar, as well as the Euro and AU Dollar.


Following an impressive performance last week the New Zealand Dollar is embracing a rise in interest rates auctioned by the Reserve Bank of New Zealand. Wednesday will see the release of GDP (Gross Domestic Product) data results which are hoped to keep the ‘Kiwi’ in favour. With suggestions of another interest rate hike in July, the NZ Dollar seems to be enjoying a period of stability which is reflective of the economic growth of New Zealand. Michael Gordon, a Westpac economist, has suggested: ‘The sense from the Reserve Bank last week was that they expect to hike rates in July unless the data dissuades them otherwise. I don’t see the GDP data dissuading them from hiking next month.’


Market experts with market experts with TD Securities and Lloyds Bank have predicted that the Canadian Dollar will enter a period of softening against the US Dollar. Canada’s recent employment data showed an increase in part time work and a decrease in full time positions, causing concern among economists regarding the state of Canada’s economy and the devaluing the ‘Loonie’. Shaun Osborne of TD Securities states: ‘USD-supportive yields and the drift down in commodity prices in the past few weeks support the impression that the CAD is fundamentally over-valued at current levels.’ That being said, the Canadian Dollar did enjoy a boost as oil prices reached highs as the situation in Iraq continues to escalate.


As commodity currencies appear less attractive to investors while the Iraq crisis persists, the ‘Buck’ has strengthened greatly against the Indian Rupee, which is struggling against the US Dollar due to inflation concerns. Positive results came on Monday in the form of production statistics; however Tuesday will see the release of the US consumer price index and domestic building data. It is hoped that favourable results will boost the US Dollar further.


The Euro awaits results from the monthly ZEW surveys, which offer an indication of economic sentiment in both Germany and the Eurozone as a whole. Positive results could help the Euro escape from a troubled few days of trading. The common currency dropped in response to the European Central Bank’s latest interest rate cut and slumped to a 19-month low against the Pound. Lloyds Bank have proposed: ‘Prospects for the Euro are closely tied to the success of the new ECB measures. Euro area inflation slowed to 0.5% in May and continuing softness would put pressure on the ECB to do more.’


Jacob Zuma, President of South Africa, is due to make a speech on Tuesday which may have the potential to inspire some confidence among investors regarding South Africa’s economic outlook at and the stability of the Rand. Sentiment has been falling in response to the disruptions caused to South Africa’s economy by the prolonged mining strike—which has downsized the domestic economy by 0.6%—and a downgrade by credit rating agencies Fitch and Standard & Poor’s from stable to negative.

Zuma plans to introduce a policy to slash the unemployment rate from 25% to 14% by 2020. Wednesday will see the release of data for South Africa, including inflation figures and retail sales statistics, both of which are predicted to have risen. If the results are favourable it could prove positive for the Rand.

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