Australian Dollar to British Pound (AUD/GBP) Down 0.43%, AUD/USD also Drifts Lower
After an explosive week for the currency market, the British Pound was able to climb by over 0.40 per cent against the Australian Dollar.
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The GBP/AUD exchange rate has been supported this week by the news that UK unemployment fell by more-than-expected while Australia’s unemployment rate stagnated.
However, a risk-on environment was keeping the ‘Aussie’ buoyed and it wasn’t until Bank of England Governor Mark Carney indicated that interest rate increases are on the horizon that the Pound was able to make any notable gains.
Although Carney maintained a cautious attitude he did state that the BoE’s first interest rate increase could occur sooner than investors currently anticipate.
As the BoE has so far adopted a dovish stance with regards to interest rate increases, the announcement came as something of a surprise and the Pound posted significant, widespread gains against rivals including the Euro, US Dollar and Australian Dollar.
During Australasian trading the Down-under asset fought its corner valiantly thanks to impressive Chinese industrial production data.
As China is Australia’s main trading partner, the news that industrial production was up 8.8 per cent on the year in May was ‘Aussie’ supportive, as was a separate report detailing a 12.5 per cent increase in Chinese retail sales.
The results prompted this response from senior economist Dariusz Kowalczyk; ‘The data confirms stabilisation of economic activity and even a modest improvement on the manufacturing side. Unfortunately, home sales by area contracted sharply, highlighting continued weakness of the real-estate sector and the risks it poses to overall growth.’
Meanwhile the tense situation in Iraq inspired a reduction in risk appetite and fluctuating commodity prices.
The Australian Dollar accordingly shed some of its recent gains against the US Dollar, although it continued trading close to the 94 US cents level.
Oil prices have climbed as a result of concerns that if the Iraq tensions escalate the oil supply will be compromised. Strategist Michael McCarthy stated; ‘There’s potential for disruption to spread around the Middle East and we’re talking about significant amounts of daily supply. The market got concerned about potential disruption in Libya; Iraq is a much more serious situation.’
If today’s University of Michigan confidence index shows that sentiment in the US improved, as economists expect it too, the US Dollar could push higher against the ‘Aussie’ before the weekend.
Next week’s major Australian economic reports include the nation’s conference board leading index and Westpac leading index.
Reserve Bank of Australia Governor Glenn Stevens is also scheduled to deliver a speech on Tuesday.
The Australian Dollar is currently trading against the US Dollar in the region of 0.9378 and trading against the British Pound in the region of 0.5530.