Monday, June 30, 2014

Sterling at five year high | Oz RBA holds rates but maintains firmer bias

The Pound Sterling against the US dollar, or “Cable” as the pair is known in Foreign Exchange circles, is now at its highest level since August 2009.

While this is partly due to the pricing in by the market of an expectation that the Bank of England Monetary Policy Committee (MPC), will raise interest rates sooner rather than later, it also reflects an underlying weakness in the US unit. This has been exacerbated by the recent downward revision of US GDP figures.

This week’s US Non-Farm Payroll report now takes on a new significance. Due for release this coming Thursday, the NFP report will need to be particularly strong to give the dollar back some of its lustre. In the meantime our brokerage friends tell us that, prior to the rise in Cable, there was a heavy interest in short selling of the GBPUSD pair. This resulted in the closing out of positions when the break through the five year resistance level took place, and a consequent short squeeze which had the effect of driving the pair higher still.

Oz RBA holds rates but maintains firmer bias

Overnight GMT the Australian central bank, the Reserve Bank of Australia (RBA), announced, as expected, that it was holding its historically low core interest rate at 2.5%.

However, the market was quick to note that there was no mention by the bank of fears that the Australian dollar was overvalued, which it has been quick to point out in the past. This is the so-called “jawboning” technique which it has relied on formerly to contain the rise of the Aussie in the absence of explicit measures to hold it down.

The end result was a strengthening of the Australian currency overnight. It is now at an elevated level against all of its major counterparts.

Does this mean the RBA is content to have a strengthening currency and will it now contemplate a rise in interest rates, which it would like to do in order to deal with the fear of a property bubble Down Under?

No comments:

Post a Comment