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The AUD - Australian Dollar weekly update 30 Jun 2008
In this week's
update: Another round of risk-aversion?
- UK mortgage approvals slump
- Aussie rates probably on hold
Sterling opened in London this morning at $2.0650, unchanged from last Monday. In the meantime it dipped to $2.0550 and peaked above $2.08.
The week's economic data were not particularly helpful to Sterling. Its saving grace was that figures from elsewhere were almost equally as lacklustre. The highlight - if a negative figure can be referred to as such - was the CBI Distributive Trades survey. After the previous week's unbelievably strong Retail Sales performance the market was ready for a burst of harsh reality from the shopkeepers. Forecasters were going for a 16 reading so when it turned out to be only 9 there was a degree of relief.
Rather less satisfactory was mortgage activity among BBA members. The Independent was perhaps exaggerating when it said "the number of mortgages approved for house purchases slumped to an all-time low." It would be a surprise if the figure had not been lower in, say, 1914 or 1939. Yet the point was well made that, compared to a year ago, fewer than half as many people are buying. According to the BBA, "only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders." Scant consolation when there are 15 sellers for every buyer.
Bank of England Governor Mervyn King was slightly less gloomy than usual during his Q&A session at the parliamentary Treasury Committee. He repeated his story about inflation rising above 4 per cent by the end of the year but was evasive about what might happen to interest rates. The media and the market were left guessing and failed to come up with any firm conclusion.
The Australian Dollar, like the British Pound, made headway against a suffering US Dollar over the week. With market attention focused on interest rates decisions in Washington (stuck at 2 per cent on Wednesday) and Europe (Euro rates are expected to rise on Thursday) the Aussie offered little excitement to attract attention away from the Big Two. Motor vehicle sales and private sector credit are both interesting on their own way but there was little other news from the Australian economy to fire up the market.
The Reserve Bank of Australia's board sits down this week to decide what to do with interest rates. Every signal so far suggests that they will keep the cash rate at 7.25 per cent. It is still an attractive yield but one that is now failing to draw in the punters. With investors now starting to worry again about equity markets and risk the Australian and Kiwi Dollars could be about to suffer from another bout of risk-aversion. The strong performance of the Japanese Yen last week highlights this possibility.
The tone of the RBA's statement will decide whether or not investors wish to prolong their love affair with the Australian Dollar. Hawkish words will help; platitudes will hinder, as was the case for the US Dollar last week. Buyers of the Australian Dollar should hedge up to half their short term requirement and look for better levels. With a longer term view a smaller percentage is reasonable as long as the balance is protected by a stop order.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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