Aussie Dollar Rises Further Against the Pound; 1.6650 now in crosshairs


The Australian dollar rose versus the pound and the dollar on Wednesday on the back of comments from Glenn Stevens, we examine the impact the comments had and how these have changed our forecasts for exchange rates.

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Comments from outgoing Reserve Bank of Australia (RBA) Governor Glen Stevens which suggested he was in favour of leaving monetary policy unchanged and for government fiscal stimulus to do more of the heavy lifting work to boost the economy, helped the Aussie rise versus the pound on Wednesday.

The remarks suggested the RBA were reluctant to lower rates any further after having already made two 0.25% rate cuts in May and August of this year.

The speech seemed to further reduce the possibility of a November cut, and falls in line with recent analysis from Credit Suisse also playing down the chances of a third cut in 2016.

Lower interest rates tend to devalue a currency as they attract less inflows of foreign capital seeking yield.

Stevens pointed to the disparity between government debt which stood at 40% of GDP, and private debt which stood at 120% of GDP, implying there might be more scope for the government to borrow and help oil the wheels of the growth.

He said he thought it highly unlikely the RBA would need to consider cutting rates below zero or use other non-standard measures.

The pound meanwhile was pressured by GDP estimates for the three months up to including July, which showed the economy grew at a slower 0.3% than the 0.6% analysts had expected.

The data seemed to reignite fears about a Brexit inspired slowdown in the economy, and weakened sterling.

The pound has now dropped to below 1.68 in trading on Friday August 12.

The move down extends the already existing down-trend further.

An extension lower was further supported by the MACD indicator producing a bearish sell sign after crossing over its signal line.

A break below the new 1.6762 lows would probably confirm more downside to 1.6650, which lies just above long-term historic support at 1.6640.