Pound and AUD divergence

While US dollar weakness was the dominant theme in the FX space, the strength in the sterling has maintained its momentum. 

The USD mostly lost ground to the majors, with some big moves in EUR/USD, GBP/USD and USD/JPY. This was mainly attributed to a sharp move in US yields which dropped around 10 basis points. It has been one-way traffic in the pound since the unemployment rate beat consensus on Wednesday.  The gains continued despite BoE Governor Mark Carney saying there’s no need for an immediate hike in borrowing costs. Cable is now trading at its highest since May 2011, with momentum firmly to the upside.

Some interesting dynamics are emerging in the GBP/AUD cross as the two currencies face increasingly diverging fundamentals. The pound is being underpinned by a vastly rebounding economy and the prospect of a rate hike in the not too distant future. Meanwhile the AUD is facing significant uncertainty and pressure from a domestic economy perspective and a recent bout of weakness from China. Yesterday’s disappointing HSBC China manufacturing PMI print kept commodity currencies like the AUD on the back foot and the trend has continued in today’s Asian trade.

GBP/AUD traded through 1.90 for the first time since September 2009 and this has many speculators talking about the prospect of a move to 2.00 in the near future. The pair printed a high of 1.9032 and continues to knock on 1.90 in Asian trade. The uptrend has been relentless and we’ve seen sizeable gains since the pair bottomed at 1.80 on January 14.

forex24012014
IG Charts

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.