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Thoughts on the AUD/GBP pair.

Written by Sam Coxhead on May 19th, 2011.      0 comments

2:00 PM (NZT) The AUD/GBP remains at relatively high levels. Trading over the last week has been orderly with a reasonably small range being established. The pricing has mainly remained in the .6490 - .6580 range.
In the last 24 hours there have been relative stable as two pieces of information came to the market. The credit agency Moody’s downgraded the credit ratings of the four major Australian banks sighting their reliance in funding in offshore markets as the driver of the move. Should credit conditions deteriorate in offshore markets, the cost of funding for the Australian banks would balloon and this would put pressure on their business. This announcement has caused a little softness in the AUD, that underperformed other growth assets higher as general market aversion eased. Countering the AUD softness relative to the GBP was the release of the Bank of England Monetary Policy Meeting minutes that re-iterated to the market that the Bank of England will not be hiking the cash rate soon in the UK. This comes as inflationary pressures remain at heightened levels.
Overall, my view is that the AUD/GBP has probably seen its peak in the current cycle, and over time we will see the GBP appreciate against the AUD and take back some to a ground it has given up over the last  five months or so. This will be for the most part due to AUD weakness , as opposed to any outright GBP strength
The current AUD/GBP rate at the interbank level is .6575.