Australian Dollar's Hefty Advance Could Have the New Zealand Dollar to Thank
The pound to Australian dollar exchange rate (GBP/AUD) remains on offer as the Ausse juggernaut looks to be almost unstoppable. However, digging deeper, we note the rally could be fragile.
Driving the latest move higher in the Aussie was news on Thursday the 14th that the Australian economy added 26.1K jobs in March, that is more than the 20K analysts were expecting.
The number of unemployed persons decreased by 2,800 while the unemployment rate remains at 5.8 pct. The participation rate remains at 65.0 pct and the employment to population ratio remains at 61.2 pct.
The AUD rose broadly on the news and we have seen the pound / Australian dollar exchange rate lurch by a percent lower to 1.8380.
The Australian to US dollar exchange rate rose 0.6% to reach 0.7698.
Despite the strong data we note there are some concerns, as communicated by a statement from the Australian Bureau of Statistics that accompanied the release:
“The trend employment increase of 7,700 persons represents a monthly growth rate of 0.10%, which is below the monthly average over the past 20 years of 0.16%. While trend employment growth was above the 20 year months average from December 2014 to December 2015, the rate of growth in employment for the past three months has been below this average.”
Although the headline numbers looked upbeat, the underlying data was far less bullish than it would appear. All of the gains were actually in part time jobs and full time employment actually shed -8.8K positions.
"None of these data points were unabashedly bullish and Aussie actually sold of a bit in the aftermath of the release, but the unit found a very strong bid in European trade climbing more than 70 points in a few hours," notes Boris Schlossberg of BK Asset Management.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0146▼ -0.08%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9461 - 1.9542 |
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* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
RBA to Remain Unmoved by Employment Data
What does the strong employment data spell for the AUD going forward then?
The question ultimately comes down to how the data could potentially sway thinking at the Reserve Bank of Australia.
Australia’s base interest rate sits at 2.0% making it one of the highest in the developed world. This high yield attracts vast inflows of investor money in a flow that keeps the AUD propped up.
Any signs of an interest rate cut over coming months could alter this dynamic and therefore place downward pressure on the Aussie.
However, Jeremy Stretch at CIBC in London believes the RBA will continue to sit on the sidelines on the basis of these employment data:
“While some still cling onto hopes of additional RBA easing, due to assumptions of lacklustre inflationary influences (Q1 data is due on April 27), we would argue that with the unemployment rate at the lowest level since September ’13 there is little reason for the RBA to consider lower rates.”
This is a pro-AUD view as we see no changes to policy as being supportive to the status quo, and that is one of a strengthening currency.
Is the New Zealand Dollar Pushing the AUD Complex Higher?
Analyst Kathy Lien at BK Asset Management argues there is little fundamental support for the push to 8 month highs.
She cites the following:
- Job growth in Australia was stronger than anticipated and the unemployment rate declined but that was primarily due to a steady participation rate and increases in part time work.
- More full time jobs were lost than gained in March, which is a reflection of weakness and not strength in the labor market.
- Gold prices also turned lower and the U.S. dollar is trading higher against most of the major currencies.
So why is the Australian dollar the day's best performing currency?
"The answer is easy. Just look at the AUD/NZD cross. AUD/NZD experienced its strongest one-day rise in more than a month as the Australian and New Zealand dollars moved in completely opposite directions," says Lien.
This could be driven by a major M&A flow or hedge transaction or it could be a reaction to changes in monetary policy expectations by local banks.
The research team at Macquarie Bank pushed back its rate cut expectations to August while Bank of New Zealand, one of the largest in the country expects the central bank to reduce rates in April and June and warned that the market is underpricing the chance of April easing.
Traders could also be punishing the New Zealand dollar for the leaked March rate cut decision.
Last night, the RBNZ admitted that its surprise rate cut in March was leaked by a journalist ahead of the official announcement and in response, the central bank will now be making its monetary policy decisions available to the public and the media at the same time.
"So as you can see, the strength of the Australian dollar today had more to do with exogenous factors than a rosier outlook for the country," says Lien.
Outlook for the Pound to Aussie Dollar Rate
The British pound has been in decline against the Australian dollar since January; in fact the declines have been so consistent that sterling has offered up no resistance.
The downtrend is well established and we see little signs of reversal on the charts.
GBP/AUD remains below the 100, 50 and 20 day moving averages confirming downside pressure is forecast to extend in the long, medium and short-term timeframes.
The Relative Strength Index is above 30, just, and therefore we don’t even see the current down move as being overdone, as has been the case in the past.
The next level of major support, where selling pressures could ease, is seen at 1.80 which is the zone heavily favoured by the pair back in 2014.
