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Thoughts on the AUD/GBP pair

Written by Sam Coxhead on June 30th, 2011.      0 comments

12:00 PM (NZT) The markets have remained volatile overnight in the wake of a positive vote on the Greek austerity legislation. Tomorrow is the second vote of implementation, but seems to be a done deal from here. There has been a large move for demand of “risk” assets ahead of these votes in Greece, after the market saw high levels of risk aversion in the latter half of last week. A French led alternative for private Greek bond holdings has contributed to the reduction in the risk premium placed on the Greek debt.
The AUD has appreciated as a result, and the GBP has underperformed as continuing chatter from these bank of England officials puts a spanner in the works for the time being. Interestingly, there was a UK 1year inflation expectations survey released overnight the June reading was 3.9% against a May one of 3.4%, this will not sit well with those at the Bank of England pulling for another round of Quantitative Easing, but at this stage it has had limited impact.
So on the balance the AUD/GBP has pushed back up towards the high of the range in AUD terms, with the current interbank market at .6642 (1.5055- GBP/AUD). The post float high of the AUD against the GBP is .6647, to put the current levels in perspective. There is a lack of top tier economic data in Australia this week, and this means the AUD lead is driven primarily by the overall appetite for risk. Next week sees a flora of economic data in Australia, so we can expect a more domestic driven lead.
One other factor that also maybe contributing to these moves is the month, and financial year end for some. This brings more illiquid markets and may mean that we see a bit of a reversal in the early July period. Current levels obviously represent very good value buying of GBP with AUD.