Good Morning

Some relatively positive news for sterling to kick-start your week!

Thanks

Nat


STERLING IGNORES PROSPECT OF HUNG PARLIAMENT
Mostly positive UK data but GDP disappoints. Good-news-bad-news treatment from the RBA.

There was movement in the GBP/AUD exchange rate last week but in the end it did not take it far. The pound added a net half cent to open in London yesterday morning at $1.6650. The extremes of its range were Wednesday's $1.6450 low and a high above $1.67 on Friday.

With the opinion polls pointing ever more precisely to a hung parliament after next week's general election the FX market gave every impression that it had come to terms with such an outcome. Sterling was a winner on most fronts and its trade-weighted index ended the week just short of 80, almost exactly the same level at which it began the year.

It received considerable help from most of the week's economic data. Tuesday's consumer price index figures showed inflation accelerating again to 3.4%, a level that investors thought might be high enough to influence the Monetary Policy Committee. Yes, the Bank did warn that inflation would speed up before it fell back to its target zone, but what if it does not fall back? The question itself was enough to raise the spectre of higher UK interest rates and, with it, the pound. Wednesday's employment figures were less compelling but a 33k shortening of the dole queue was positive enough. Thursday's money supply figures revealed total government borrowings of £163.4 in the financial year just ended, slightly less than last month's budget forecast and 8% below the chancellor's original estimate.

Friday's first estimate of overall economic performance in the first three months of the year was far from helpful though. For the third time on the trot, economists and investors overestimated quarterly expansion of gross domestic product. Instead of the expected +0.4% they had to cope with +0.2%. Sterling reacted just as it had done to identical situations in October and January. It went down. But not for long.

In a week with very few hard economic data investors had to pick the bones out of a Westpac leading index that went up from +0.2% to +0.5%, a -2.7% monthly fall in new vehicle sales and a +0.3% rise in import prices. None of the figures set pulses racing.

Fortunately, the Reserve Bank of Australia was ready to step in and get things going. On Tuesday the minutes of the RBA's last policy meeting made investors more confident that the cash rate would see a sixth increase next month. The AUD jumped a cent higher on the news. Having wound the market up on Tuesday RBA governor Glenn Stevens did the opposite on Friday. He said in a speech that Australian interest rates are 'pretty close' to the 10-12 year average and that their future course is an 'open question'. Whether deliberately or not, he poured cold water on investors' expectation that Aussie rates are heading for the sky. Whether or not the RBA decides to increase rates next month could all depend on Thursday's inflation figures.

Sterling's ability to shrug off the opinion polls and the disappointing GDP figure gives room for guarded optimism but, with the election only ten days away and higher AUD interest rates in the wind, there is little prospect of any substantial rally.

ELECTION WORRIES HAUNT STERLING ONCE AGAIN
Lib-Dem lead scares investors and sterling. Australian confidence dented by higher interest rates but it could be worse.

Sterling opened last week in London at $1.6590 and this morning at $1.6602. The dozen ticks that separate the two prices do not constitute a move. In the interim, the pound remained almost exclusively between $1.65 and $1.6650.

Unquestionably the week's most important event for sterling was Thursday's debate between the three main political party leaders. That the Lib-Dem's Nick Clegg came out on top was not a total surprise: because the other two did not deign him worthy of attack almost his every statement could be made to sound positive. Nor was anyone amazed by the prime minister's typically wooden delivery. What has absolutely been a surprise, though, is the way those personal appearances have affected the parties' standing in the opinion polls. Voters have fallen for Mr Clegg's 'reasonableness' to such an extent that the latest YouGov poll put the Liberal Democrats on 33%, the Conservatives on 32% and Labour in third place with 26%. Psephologists are not in complete agreement as to how things would work out in the commons if people were to put their crosses where their mouths are. It is entirely possible, however, that Labour could end up with 268 MPs, the Conservatives with 230 and the Liberals with just 120. There is nothing in Britain's eccentric democratic system to say that the party with the most votes gets the most seats.

It was beginning to look last week as though investors had come to terms with the idea of a hung parliament, that they had priced all the bad news into sterling. But this latest opinion poll has forced everyone to have another look at their position. The Financial Times asked ten of Britain's biggest fund managers how a hung parliament would change their attitude to investing in UK government bonds - gilts. They all agreed that such an outcome was 'the biggest threat to the market'. Only one of the ten thought gilts would do better under the Tories. The other nine 'were equally happy to see a new Labour or Conservative government, provided it had a clear majority.' And that attitude has carried over into the currency market. Investors have rediscovered their nervousness and so has sterling.

For the Australian dollar last week was all about sentiment, especially as it relates to interest rates. NAB's survey of business confidence found companies less optimistic, especially in the transport, manufacturing and wholesale sectors. The confidence index fell three points to 16. On the other hand, those same firms had a more upbeat feeling about how things are going at the moment. The business conditions index went up by five points from 8 to 13. The customers of those firms have also experienced a slight dent to their confidence. Westpac's consumer confidence index fell by -1.0% from 117.3 in February to -116.1 in March.

However, that is not such a bad outcome considering the four interest rate increases that the Reserve Bank of Australia has delivered in the preceding six months. The cash rate that stood at 3.0% in September is already up to 4.25% and there are undoubtedly further increases in the pipeline. But those hikes will probably not come at a rush. Having warned investors not to expect a rate increase at every board meeting the RBA surprised many by its April move from 4.0% to 4.25%. After its next tightening of the screw, either next month or in June, there could well be a pause while the RBA sits back to consider the effect of its action so far.

Hi everyone

A continuation of the status quo as far as Sterling was concerned. The election looms in the UK and it is still difficult to predict if this will result in a small recovery or yet more burning bridges.

For a full overview, please read our update below.

Thanks

Nat


ANOTHER USEFUL WEEK FOR STERLING
No surprises from the Bank of England. Good Australian employment figures disappoint over-ambitious investors.

The $1.63 - $1.67 range held sterling steady for a fifth week. The pound did not quite touch either side of its horizontal channel but it came close to both. It opened in London on Monday morning at $1.66, a cent higher on the week.

Against the majority of currencies it was another useful week for sterling, despite conflicting economic data and opinion polls that continued to point to a hung parliament. There was even disagreement among supranational agencies as to how Britain should address her budget deficit. The Bank for International Settlements sided with (what investors assume to be) the Tory strategy of wielding the axe on public spending as soon as possible after 6 May. If the UK is to avoid spending a quarter of its gross domestic product on interest payments in 30 years' time the BIS said there would have to be 'drastic' austerity measures. The Organisation for Economic Co-operation and Development, on the other hand, supported the Labour view that to slash spending now would be to choke off recovery before it has properly begun.

The UK services sector purchasing managers index was at the same time good news and bad news. The good news was that, at 56.5, it was a point clear of its nearest competitor. The bad news was that it was two points down while the opposition was at least two points higher on the month. Industrial (+1.0%) and manufacturing (+1.3%) production data were better than expected and a vast improvement on the previous month's negative figures. The same was true of the Halifax house price index, which was 5.2% higher on the year.

With the election campaign under way there was no chance of any surprises from the Bank of England's Monetary Policy Committee, which issued a no-change statement almost identical to the one it put out in March. Indeed, the May meeting has been postponed to the 10th in order to avoid any possibility of interference with polling day.

With the Reserve Bank of Australia's interest rate increase out of the way on Tuesday there was not much to keep the Australian dollar entertained during the remainder of the week. The AIG performance of services index was fractionally higher in March, 48.4 as opposed to 48.3 the previous month. Unfortunately it looked a bit sad in comparison with similar (but not identical) measures elsewhere, all of which were in the expansion zone above 50.

On the face of it there was nothing sad about Thursday's Australian employment data. New job creation in March amounted to 19,600; within a thousand of analysts' predictions. It was a decent enough number but clearly not decent enough for the investors who had been spoiled by better-than-expected figures in previous months. The disappointment lingered on Friday and over the weekend, partly as a result of the Canadian dollar encountering an identical setback.

The UK general election means risks for the pound in the next month. Even so, the pound's six-week range shows no sign of breaking in either direction.

Good Morning

Yesterday's interest rate rise means that sterling is still under pressure!

If you have any queries, please do not hesitate to contact me.

Thanks

Nat


STERLING SURVIVES THE EASTER HOLIDAYS
Fourth quarter UK economic performance revised upwards. RBA raises rates again and there is more to come.

A disappointing start to the week took sterling down to $1.63 before buying interest developed. However, by Thursday the pound was testing $1.66 and it continued to do so until early this morning. The RBA interest rate increase condemned sterling to a sharp drop. It was down to $1.65 by the time London opened and heading south.

The Three Chancellors' performance on British television at the beginning of last week was unexpectedly harmonious. They were in agreement about many aspects of the nation's economic plight and how it might be sorted out. It was vaguely reassuring to investors, suggesting as it did that a hung parliament might bring less policy wrangling than they had previously thought. The tone remained positive for sterling throughout the week even if it did not result in gains on every front.

The week's UK economic evidence was not wholly convincing but was not without its good points. While mortgage approvals remained at a low level, consumer credit expanded more quickly in February. Logically that ought to mean that people were becoming more adventurous in their spending habits but if they were, it seems not to have carried over into the following month: Gfk's index of consumer confidence was a point lower in March at -15. The purchasing managers' index, a barometer of performance for - in this case - the manufacturing sector continued its improvement. It rose to 57.2, its highest level since the beginning of the recession. Nationwide's house price index resumed its upward progress after a wobble in February, clocking a 0.7% increase that leaves prices 9% higher than a year earlier. Perhaps the best news was an upward revision to Britain's overall economic performance in the fourth quarter of last year. Gross domestic product grew by +0.4% rather than the +0.3% previously estimated. With no further revisions due for the Q4 data Britain can breathe a sigh of relief and put the recession behind her

The Australian economic statistics were by no means helpful. New home sales fell by more than 5% in February, eating into the +9.5% increase the previous month. That they were up by more than a third compared with a year earlier went some way to mitigating the disappointment. Retail sales were down by -1.4% and the performance of manufacturing index - the purchasing managers' index - fell from 53.8 to 50.2. February's trade deficit widened from -$1.2 to -$1.9 billion.

The weaker than usual ecostats allowed the AUD to fall back but yesterday’s interest rate decision by the Reserve Bank of Australia was enough to undo all the damage. The RBA raised its policy cash rate from 4.0% to 4.25%. Although it was not a surprise, the RBA's observation that 'today’s decision is a further step in that process' was enough to convince investors that there is more where that came from. 6.0% next year still looks entirely possible.

The UK general election - and the opinion polls that will inevitably precede it - mean risks for the pound in the next month. Even so, the pound's six-week range shows no sign of breaking in either direction.

Hello everyone

If you have any questions or are looking for some foreign exchange top tips - do not hesitate to contact us on enquiries.sydney@moneycorp.com.au

Thanks

Nat


A CLEAN SHEET FOR STERLING
UK budget leaves sterling unmoved. Australian rate hikes forecast for April and May.

A three-cent range kept the pound between $1.6250 and $1.6550. It spent most of its time between $1.63 and $1.64 and opened in London on Monday morning unchanged on the week at $1.64.

After their experience the previous week when members of the Monetary Policy Committee twice spooked the market by mentioning 'double-dip' recession, investors were nervous when the governor of the Bank of England gave a speech to the Royal Society. They need not have worried. Dr King did include a caution that 'the level of activity is still very likely to remain weak for a considerable period' but that was all. It was nothing the market couldn't live with and sterling lived to fight another day.

Tuesday's consumer price index data were no help to it though. Having spiked to 3.5% in January inflation fell back to 3.0% in February, just on the edge of its target range. The feeling was that the Bank might have been correct in its prediction that inflation would come back into line. As it does so it removes any need for higher interest rates, instead reawakening the prospect (dim though it is) of further quantitative easing. Thursday's UK retail sales figures were almost good. Rather than the +0.6% monthly improvement that analysts had predicted, sales rose by +2.1% in February. Unfortunately, a significant chunk of that improvement was wiped out by a downward revision to the January number.

Compensating for the relative shortage of UK economic data during the week was the Chancellor of the Exchequer’s election announcement on Wednesday. Of course he did not set a date for the vote but some of the policies he announced were so theatrical that they could be nothing other than a campaign gambit. The bilateral taxation agreement with Lord Ashcroft's Belize raised a laugh. The imposition of a 5% stamp duty on Conservative voters' palaces got a nod from the Morning Star and the stamp duty holiday on socialists' quarter-million pound hovels brought a shrug from economists, who foresaw another distortion of the residential property market. The chancellor's words had no effect on sterling; at the end of the speech it was exactly where it had been at the start. Investors are much more interested to see what the post-election spending review will bring.

The Australian economy maintained an almost subterranean profile. Motor vehicle sales were down by -1.9 % in February, having fallen by -3.5% the previous month. The only other event was the publication of the Reserve Bank of Australia's six-monthly Financial Stability Review. There was nothing in it to set the Australian dollar on fire but the tone was positive. Economists reckon that Australian interest rates could rise by another two percentage points between now and the end of next year as the economy gets back to normal. Increases of 25 basis points are forecast for April and May, with another 75 basis points between then and December.

Since the beginning of the month GBP/AUD has changed direction six times and has gone almost nowhere.

BANK OF ENGLAND 2 - STERLING 0
MPC members raise spectre of double-dip recession. RBA minutes make no promises.

The week cost sterling two cents in a range that took it between $1.6650 and $1.6350. Having touched that low early Monday morning, the market opened in London yesterday at $1.64.

Monetary Policy Committee member Kate Barker was talking to her local paper last weekend. She told the Western Morning News that 'it's possible we will have a quarter when GDP falls but I don't think it will be a double-dip [recession]'. Investors read about it on Monday's newswires. They looked again at the possibility of an indecisive general election. They put two and two together and sold sterling. By the end of the week investors had been treated to a spooky déjà-vu when Ms Barker's fellow MPC member, Andrew Sentance, went down the same track. On Thursday he had said in a speech that 'we should expect to see some variability in growth rates, both at home and abroad.' Had he left it at that, all would have been well but he went on to tell CNBC that 'you have to recognise there is some risk of a double dip but that's not the central forecast.' Investors couldn't care less about the Bank's central forecast; they had heard two MPC members talking about double-dip recession in the space of five days and it made them nervous about the UK economy.

They were marginally less nervous about the medium term outlook for Britain's indebtedness after government spokespeople queued round the block to backtrack on the Treasury Secretary's promise that taxes would not go up after the election. They will be going up after all, it transpires, and they will be going up even before that in the chancellor's budget this week.

In the run-up to his speech the chancellor got a couple of lucky hits from the economic data last week (or at least sterling came in for some good fortune). Investors opted not to punish sterling for the loss of 54,000 British jobs in three months. Instead they praised it for the 32,300 fewer new jobless claims in January than in the same month last year. By the same token they looked upon February's £12.4 billion public sector net borrowing figure not as a heck-of-a-lot of money but as an improvement on the £14.4 billion they had been expecting. A genuine bonus among the data was the £4 billion downward revision of January's borrowing.

A +15.1% increase in Australian housing stats in the fourth quarter of last year was good enough but hardly germane to what is going on now, more than three months later. The +0.2% improvement in Westpac's leading index for January could almost also be dismissed as water under the bridge. More immediate was the Reserve Bank of Australia's minutes from its latest monetary policy meeting. After the March interest rate increase, and the RBA's warning that tighter policy does not inevitably mean one rate hike per meeting, the jury is out on what might happen in April. AUD rates are going higher, but by how far and how soon is the subject of spirited debate.

A generally upbeat attitude among the world's investors did not have its usually positive effect on the AUD and NZD, neither of which made any headway against the US dollar or the Japanese yen. An almost schizophrenic mindset afflicted the market at mid-week when investors decided to cherry-pick one currency against another for no immediately obvious reason.

Since the beginning of the month sterling/AUD has changed direction four times and has gone almost nowhere.

Hello everyone

It's that time of the week again! If anyone has any questions - just let me know.

If you are a BERIA member, contact our Sydney office and we will waive our transfer charges!

Thanks

Nat


STERLING RIDES MOST OF THE BLOWS

It was almost another losing week for sterling but in the end it just about managed to open in London on Monday morning unchanged at $1.66, close to its highs. The low came in mid-week at $1.6250.

In a dull week for hard data the British economy did not have a whole lot to say for itself and what it did manage to scrabble together was not particularly edifying. Two house price indices, one from the Royal Institute of Chartered Surveyors and the other from estate agents' website Rightmove, damned the property market with faint praise. The RCIS house price balance, which compares the number of members reporting higher prices with those reporting lower ones, fell from 32% to 17%; still positive but more reservedly so. Rightmove's index of asking prices went up by 0.1%; positive but only by a technicality. UK industrial production figures were a bigger disappointment and took sterling to the lows of the week. Production (manufacturing, mining and energy lumped together) fell by -0.4% in January. Manufacturing alone was down by -0.9%. January's trade deficit was £8 billion, the biggest since August 2008. Between August '08 and January '10 Sterling's trade-weighted value became 23% weaker yet imports were up and exports were down. The significantly more competitive currency is still not having any positive effect on the balance of trade.

Sterling also had to contend with unhelpful comments from several quarters. Credit ratings agency Fitch was 'uncomfortable with the fiscal adjustment path set out by UK authorities' and looked for 'more credible and stronger fiscal consolidation plans during 2010. Credit Suisse anticipated that UK banks, collectively, would have to reduce their balance sheets by more than £500 billion over the next three or four years in order to meet new regulations. The prime minister reassured investors that Britain's AAA credit rating was solid but not all of them were convinced, especially the researchers at UniCredit Bank who predicted that the government would have problems selling all the bonds they need to shift to finance the budget deficit.

The Australian economic data were less of a disappointment than those from the UK but they were not exactly inspiring. NAB's business conditions index improved from 3 to 8 and consumer confidence crept into positive territory, rising from -2.6% to +0.2%. Investment lending edged +0.9% higher in January but home loans were down by a -7.9% after falling by -5.1% the previous month. A +2.0% increase had been predicted. Consumer inflation expectation was steady at 3.2% but there was not such good news on the employment front. Unemployment edged up from 5.2% to 5.3% in February with the number in employment rising by 400, just a fraction of the 15,000-odd jobs analysts had been expecting.

Rob Lowe, the assistant governor of the Reserve Bank of Australia, dismissed any gloom with an upbeat speech. He said 'the central scenario for the Australian economy is a positive one with growth over the next couple of years at, or above, average, a relatively strong labour market, and inflation consistent with the medium-term target.' The operative phrase there was 'at, or above, average'. The RBA has put behind it any concern about an economic slowdown and is now focused firmly on the upturn.

As long as the opinion polls continue to indicate a hung parliament investors will continue to fear that even after a general election Britain's government will be unable or unwilling to tackle the budget gap.

Hi All

Let me know if you have any questions?

Thanks

Nat


STERLING FALLS TO NEW LOWS
Australian interest rates go higher and there is more to come.

Sterling fell sharply at the start of last week, losing nearly three cents before lunch. It bottomed out at $1.65 and spent the rest of the week consolidating between there and $1.6750. It opened in London on Monday morning at $1.66.

At the beginning of the week the non-domiciled tax status of Baron Ashcroft dominated the media. Allegedly, the noble lord had bought his way into a peerage by making large donations to the Conservative party. For some reason this old tradition had become suddenly improper. It would be an exaggeration to blame sterling's sharp fall on Lord Ashcroft alone but the story will certainly have unnerved investors who were already nervous about the Tories failing to win a majority at the forthcoming general election.

From there it was uphill all the way but at least sterling managed to make it up the hill with the assistance of some positive news. On Tuesday the government held a successful auction of 30-year gilts which attracted bids for nearly twice that much. The last five auctions of 30-year stock have achieved an average of 1.63 times cover so, whatever misgivings they may have about sterling's short-term future, there is a degree of confidence among investors the current problems will be short-lived.

Having ignored Monday's manufacturing purchasing managers' index (their minds were on other things) investors took a great deal of interest in Wednesday's services sector PMI. At 58.4 the services PMI was more than three points better than predicted, scoring a three-year high. It blew America's 53.0 and Euroland's 51.8 into the weeds. Coming hard on the heels of a ten-point jump in consumer confidence it was another reminder to the market that not everything to do with Britain's economy is in a state of collapse. There was more reassurance from the Bank of England when the Monetary Policy Committee voted to keep interest rates unchanged for a 13th month and to leave quantitative easing on hold.

The handful of data that appeared last week did little to spoil the image of a thriving, recession-proof, Australian economy. AiG's (that's the Australian Industry Group not the egregious American derivatives punter) performance of manufacturing index went up from 51.0 to 53.8 in February while the services equivalent rose by a point to 48.3. They are not exactly purchasing managers' indices but they work in the way; the further above 50.0 the index goes, the more positive the outlook. Retail sales were up by +1.2% in January while building permits were -7.0% fewer on the month. Updated figures confirmed growth of +0.9% for the economy in the fourth quarter of 2009.

Having disappointed the market a month ago by not raising interest rates when everyone thought it would, the Reserve Bank of Australia eventually got round to it on Tuesday. The cash rate went up from 3.75% to 4.0%. In his statement Glenn Stevens, the RBA governor, said 'interest rates... remain lower than average' and that 'it is appropriate for interest rates to be closer to average.' That does not mean a rate increase at every meeting but it does mean there is more tightening to come.

It is still hard to see the British currency as anything other than a dog. Opinion polls continue to indicate a hung parliament and investors fear that even after the general election Britain's government will be paralysed by indecision, unable or unwilling to tackle the budget gap.

GBP/AUD Update - 2nd March 2010

Good Morning Everyone

This is my first post and, given that there is an expected interest rate hike planned for today, I thought I would start with our weekly GBP/AUD round up.

Our currency updates will be a recurring theme on this page but I also hope to bring you other foreign exchange tips and details of money saving offers from our partners.

Should anyone have any questions, please do not hesitate to contact me.

Thanks

Nat


ANOTHER WEEK OF PUNISHMENT FOR STERLING

The pound showed early promise on Monday and Tuesday, rising from Monday's $1.7150 to reach $1.74 at midweek. It spent the second half of the week heading south, opening in London on Monday morning at $1.68.

Robert Stheeman, the chap responsible for issuing UK government bonds, managed an upbeat tome when he addressed a conference in London. He said that 'politicians of all colours are taking the [public sector debt] situation very seriously indeed. Investors derive a lot of comfort that there is agreement across the spectrum that the deficit needs to be brought under control.' Mr Stheeman also suggested that a hung parliament might be 'less disruptive' than assumed. Unfortunately the market did not share his optimism and sterling spent most of the week on the slide.

The rot started, as it so often does these days, with cautious words from Bank of England Governor Mervyn King to parliament's Treasury Committee. He did not go out of his way to talk sterling lower but, by refusing to rule out the possibility of further quantitative easing, made it sound as though the Bank's printing press is ticking over and ready for more action. The governor's comments coincided with news that mortgage approvals had dropped sharply in January with the end of the stamp duty holiday.

Sterling spent the rest of the week rolling from one punch after another as investors lightened their holdings. A sharp fall in business investment at the end of last year saw investment down by 24.1% for the full year. Consumer confidence improved by three points but at -14 it still had a minus sign in front of it. Nationwide reported a -1.0% monthly fall in house prices after nine months of improvement. Britain's overall economic performance in the fourth quarter of 2009 was revised to show growth of +0.3% instead of the +0.1% previously reported but third quarter shrinkage was also revised, from -0.2% to -0.3%. Government spending in the fourth quarter was much higher than expected.

Among the week's handful of Australian economic statistics none was interesting enough to do anything to the AUD. Motor vehicle sales fell by -3.4% in January. The wage price index went up by +0.6% in the fourth quarter but the annual rate of increase fell back from +3.4% to +2.9%. Australia's leading index improved from -0.3% to +0.6%. Private capital expenditure was strong in the fourth quarter of last year, rising by +5.5% to offset the -5.2% decline between June and September.

All these numbers will help to inform the Reserve Bank of Australia's monetary policy decision today but nobody is in much doubt about the outcome. After a pause in its tightening process the RBA is confidently expected to raise its cash rate from 3.75% to 4%. Never mind that equally confident expectations a month ago came to nought; a no-move decision tomorrow would be a big surprise.

The pound has fallen to new lows. It has taken what looks, on the face of it, like an unfair beating. A bounce is not out of the question but it is not easy to see how that will happen.