GBP/AUD Outlook – June 2015

GBP/AUD gained ground in May, increasing +2.8% for the month overall. The increase in the cross was in part due to the RBA’s rate cut in May, the Conservative Party’s win in the UK’s parliamentary elections and mixed economic numbers out of both countries. The UK elections were the main event for Sterling in May, as the Conservative Party gained 28 seats bringing its total to 330 parliamentary seats and giving David Cameron another term as Prime Minister. UK economic numbers in May showed improvements in the housing sector, Manufacturing Production and Retail Sales. On the negative side was CPI, which showed a negative -0.1% y/y versus an expected flat reading. Also, UK Claimant Count Change showed a decrease of -12.6K compared to an expected decline of -20.5K with the previous number downwardly revised from -20.7 to -16.7.

The BOE left its benchmark Official Bank Rate and the Asset Purchase Facility unchanged at 0.50% and 375B respectively at their latest meeting on June 4th. In the MPC Meeting Minutes for May, the BOE stated that, “For two members, the immediate policy decision remained finely balanced between voting to hold or raise Bank Rate. While there was a range of views over the most likely future path for Bank Rate, all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period.”

Australian economic data was also mixed in May. The highlight for the month was Building Approvals and Home Loans both printing significantly better than the consensus. Nevertheless, employment numbers and the Trade Balance both came out lower than expected. The RBA left the Cash Rate at 2.0% at their latest meeting on June 2nd after cutting the rate 25 bps last month. In his Statement on Monetary Policy, Governor Glenn Stevens noted that, “The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”

Traders will be attentive to Australian employment data on the 11th, the RBA’s Monetary Policy Meeting Minutes on the 16th, UK employment numbers and the MPC Meeting Minutes on the 17th for further indications on the direction of the cross. Due to weaker Australian economic numbers and improving conditions in the UK, the outlook for the cross is neutral in the near term and positive in the medium and long terms.