Thursday, February 5, 2015

Has Sterling bottomed? | Aussie dollar still resilient

The British Pound against the US dollar, or Cable as it is known in Forex circles, has recently shown technical indications that it might be about to undergo a trend change. It might have rebounded in anticipation of reaching a well-established long-term support level (see above). There is also a possibility that it is about to break out of its medium-term downtrend channel, to the upside.

Fundamentally, the British economy has been getting back on a sound footing for some time. True, indications of interest rate rises by the Bank of England have had an “on-again, off-again” flavour, but recent comments by the BoE Chief Economist, Andy Haldane, have brought them to the fore again. He recently indicated the speed at which rates would rise when the decision is eventually made to tighten monetary policy. The question is a matter, it would seem, of “when” rather than “if”.

The great unknown, of course, is the upcoming British general election, which is currently timed for May 7th next.


But there is another event, which takes place later today, that could have a bearing on the potential for a Sterling rally. As we pointed out previously, the US dollar is overbought. Any disappointment in US Non-Farm Payrolls, due to be released at 13:30 GMT today, could also have the effect of propelling this pair to the upside. 

Aussie dollar still resilient

Yesterday we highlighted the recovery of the Aussie dollar from the knee-jerk reaction to the recent core interest rate cut by the Reserve Bank of Australia (RBA). Now, in its finalised statement of monetary policy, issued yesterday, it can be seen that the RBA is also pessimistic about nearly every other measure of economic well-being. This extends to downgrades of GDP, employment prospects, inflation, terms of trade and hard commodity prices. Yet the currency holds it value and is, at the time of writing, above the level it was before the rate cut was announced.

What does the RBA have to do to achieve its stated aim of a lower Aussie dollar exchange rate?


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