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Quick thoughts on the AUD/GBP as it pushes to extremes

Written by Sam Coxhead on June 23rd, 2011.      0 comments

3:15 PM (NZT) Last night the Bank of England released its June Monetary Policy Committee meeting minutes. The minutes show that the committee are more dovish than previously expected and there have been discussions about further Quantitative Easing (QE) measures. Quantitative Easing is another tool used to try and boost economic growth, and is usually used only when the cash rate is bottomed out, such as it is now in the UK at .5%. Quantitative Easing is essentially the printing of money and is widely accepted as being currency negative. The GBP has responded accordingly by being sold off against almost all currencies on the back of these minutes being released.
Balancing arguments for further QE is the fact that inflation is already running at a massive 4.5%, and may well peak higher in the UK. To my mind it seems nonsensical to put in place measure that would increase inflationary pressure further, even if the medium term expectation was that the high food and energy prices would correct somewhat
Whist the AUD has not seen as big an outperformance as other currencies, the current levels of .6575 are close to those not seen since this time last month and just 70 odd points away from the decade old record highs for AUD/GBP at .6647 ( GBP/AUD 1.5043).
The move has been somewhat cushioned by the Reserve Bank of Australia own minutes from its last Monetary Policy meeting. These have taken out the chances of a hike in the cash rate by the RBA in the coming months.
Going forward the data is going to be very important from the Australian perspective, and there is little in the bay of that due tomorrow, or through next week.
Obviously current levels do not represent historically good value buying of AUD with GBP on money transfers. But given the relative outlooks, and the difference in interest rate yield, a balancing of needs must be taken into account when considering the timing sending money from the UK to Australia.