Foreign Currency Market Update – GBP / AUD Update
Sterling has managed to pull off a six day winning streak that has improved the exchange rate by over six cents from the all time low posted on the first trading day of the new year. All New Year’s resolutions start well for the first week or so, the question now is whether the Pound can find some staying power, or whether this is yet another false dawn.
It was a combination of factors that sparked the initial bout of Aussie dollar weakness over New Year. The floods in Queensland were starting to hit the news wires, but other high yielding currencies like the Rand and Kiwi were being sold in equal measure. More likely then is that the renewed concerns over the Euro debt crisis were weighing on higher risk assets as investors shifted funds into safe haven currencies like the US dollar. The Euro declined as much as 4% against the dollar over the first few days of the year which certainly supports this theory.
Over the last 24 hours selling of the Aussie has intensified as the flood reports worsen, and we are now testing the key resistance around 1.5850. This had been a key support level through October/November and it was only after the break below here that the latest slide really gained momentum in late December. The reaction to this level now will be a major technical test for the Pound. A daily close above 1.5850 would open up the possibility of a further rally towards the next noteworthy level at 1.6400. Clients should consider taking advantage of the recent improvement by hedging at least half of any AUD requirement now, or for those who wish to gamble on a continued rally (and given the strength of the long term downtrend this IS a gamble) you would be well advised to consider placing a stop order below the market to lock in a “worst case” exchange rate if the market retreats again.
