Sterling Australian Dollar Quarterly Forecast

Transcription

1 Sterling Australian Dollar Quarterly Forecast January - March 2018 Australian Dollar rises back up after better economic data Sterling still treading water GBP-AUD Forecast

2 Australian Dollar rises back up after better economic data The Australian Dollar ended the year on a somewhat gloomy note thanks to a number of factors, which include: - The Australian central bank maintaining the monetary policy status quo, resulting in a dampening effect on the AUD; - Volatility in commodities markets and the Chinese economy (with which Australia and the Aussie Dollar are inextricably linked); - Economic factors such as the Australian housing market; - Australia s own unusual political events; and - Disappointing Australian economic growth. A ray of light appeared in December 2017, however, as the Reserve Bank of Australia (RBA) seemed to be approaching future monetary policy decisions with a slightly less tentative stance. That prompted murmurs of potential interest rate changes in Combined with positive economic data in the form of improved Australian retail sales and renewed business confidence, the Aussie Dollar seemed to be gathering strength again. This was followed by impressive jobs data, which has helped to push the Australian Dollar back up. 2 Sterling AUD Quarterly halofinancial.com

3 Sterling still treading water Sterling improved in recent months and since has been treading water and riding the waves made by other world currencies for the most part, as the UK awaits further clarity on the outcomes of the Brexit negotiations. Every glimmer of progress or negative comment on Brexit has the potential to cause considerable volatility for the Pound, despite robust economic data continuing to be released for the UK and business optimism across many sectors. There are some negatives in the data though, as new car sales slumped in 2017 and December s retail sales data produced the 5th December fall in a row. The Pound has been over-bought for the short-term, but even so, the darkest days for Sterling look like they are behind us This New Year quarterly report examines how the GBP-AUD currency exchange rate has fared over the past three months and looks ahead to the coming months and the rest of 2018 to see what may be in store for this currency pairing. Aussie Dollar rises and falls Changes in the Chinese market have been keenly felt by the Australian Dollar due to its status as a commodity linked currency. Regulatory change concerning the mining and production of metals in China has meant tighter supplies of some of Australia s major exports, including aluminium, iron ore and copper. This has pushed prices up significantly. With commodities having been priced relatively low for some time, the momentum has picked up noticeably at the start of the year and prices keep climbing. The higher the prices, the bigger the boost to the Australian export market, and therefore the stronger the Australian Dollar becomes. The caveat to this could be the RBA taking action to undermine AUD strength in order to keep Australian exports competitive, so it is unlikely the Australian Dollar will climb too high in the medium term. 3 Sterling AUD Quarterly halofinancial.com

4 The RBA has been cautious until now and is in a tricky position employment and investment remain strong, suggesting there is no reason to raise interest rates, yet consumers are feeling the squeeze of a lack of real wage growth in the face of increasing household debt, along with high property prices. With the current softly, softly approach, unless there is a dramatic change in Australia s economic situation, it could be argued that the Aussie monetary policy is not going to change any time soon. A key indicator of Aussie economic strength is the Australian Trade Balance data, which was released overnight: a surplus is always a plus for the AUD, but a trade deficit dampens demand. The majority of forecasts were for an increasing surplus, yet the Australian Trade balance actually fell into deficit, weakening the Australian Dollar against its major currency pairings. We have been surprised by both the RBA and Australian Dollar performance in the past, however sending ripple effects across global currency markets so it would be wise not to count your chickens over the coming months GBP-AUD Forecast 4 Sterling AUD Quarterly halofinancial.com

5 Guidance for AUD buyers GBP-AUD broke the downtrend in November 2017 and the Pound pushed up towards the 1.80 level, which it briefly hit in December. Since then, this pair has been correcting lower and has broken the shorter term upward trend. The downside target appears to be but there are evidently GBP buyers around the A$1.72 support. If this pair does make it below A$1.71, there is a strong chance we will see a rebound from there. It is worth considering targeting 1.74 and 1.78 levels on the AUD buying side depending on your timeframe and risk appetite. A break below would be bearish and open the likelihood of a deeper correction to Guidance for AUD sellers The GBP-AUD rate is eight cents below the highs we saw December and, in the short term, this may well be the window of opportunity AUD sellers needed. A dip to is possible and anything below there would most likely trigger a larger drop to However, the Pound is looking oversold at this level and there are clearly GBP buyers happy to pile into the market at 1.72 or thereabouts. If the Pound does bounce from here or from a dip to , there is scope for a break above 1.74 and further rallies from there. Protecting your medium term requirements against such a break through the use of automated orders may well be your best option. 5 Sterling AUD Quarterly halofinancial.com

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