The GBP/AUD hit 1.43 Today as Flash Crash Shakes Sterling Markets
The GBP/AUD pair had found a temporary floor but then all hell broke loose in early Asian trade on the 7th October.
GBP/AUD had edged higher on Thursday 6th October to reach 1.6769 having hit a multi-year low at 1.6605 earlier in the week.
While some kind of relief bounce was allowed for we warned it was far too early to call this the beginning of a sustained recovery.
Indeed, in early trade on Friday 7th October GBP/AUD suddenly plunged as an algorithmic trade in GBP/USD saw Sterling crash across the board.
The GBP/AUD recorded a low at 1.4382 - the pair has not closed below here since 1985.
It is unlikely to close anywhere near here today though as the currency pair has since recovered to 1.6453 as is usually the case with these unexplained spikes.
"The flash crash occurred when liquidity usually is at its thinnest, after US trade has closed and trading in Japan and Australia has just started. In addition, activity was particallary low due to investors being cautious ahead of the US payroll figure released this afternoon. The flash crash has left investors baffled with many speculating that computer algorithms trading triggered the fall," says Benjamin Dousa at SEB.
For the latest updates on the flash crash please see our coverage here.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0112▼ -0.24%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9428 - 1.9509 |
**Independent Specialist | 1.9831 - 1.9911 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Forecasting an Extension Lower
Technical studies of GBP/AUD meanwhile suggest that the pair is likely to continue declining, in line with concerns about the more vulnerable Pound side of the pair.
The short-term downtrend is not showing any signs of reversal and so remains vulnerable to further declines (note the chart was compiled ahead of the flash crash):
Although the S1 monthly pivot bars the way at 1.6587, and would be expected to slow or prevent further declines, it could be also be overcome if the downtrend extends.
A break below the 1.6550 would probably confirm more downside to a target at 1.6400, followed by 1.6250 eventually and another tough support level.
AUD/USD to be Driven Higher by US Equities?
Analysts at BNP Paribas are meanwhile attributing the main driving force behind AUD/USD as US equities.
In a recent note, analyst Steven Saywell at BNP Paribas in London highlights a 70% correlation between the S&P 500 and AUD/USD, which they put down to, “the Federal Reserve’s decision not to tighten monetary policy at its meeting this month.”
They go on to suggest that their in-house STEER model signals that global equities are the primary driver of the currency.
“The coefficient stands close to 0.70, while those of the traditional AUD drivers (namely relative 2-year rates and commodity prices) are close to zero,” says Saywell in a research note sent to clients.
Further gains in the S&P 500 equity index, consistent with a persistently dovish Fed, would add to AUD strength, even potentially driving AUD/USD through the recent high of 0.7756 argues Saywell.
