Pound sterling recoups ground vs Australian and New Zealand dollar's as Chinese premier Wen turns increasingly cautious

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Category: Australian Dollar News

Written by Sam Coventry

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Sterling has suffered a sharp pullback from its May high towards 2.10 in the past six weeks but downside risks are looking a little more limited now.

The importance of China to the performance of the Australian dollar is well-known in the currency world; thus when any signs of economic underperformance in China are reported the Australian and New Zealand currencies are likely to feel the effect more than most.

In mid-morning trade in London we see the pound to Australian dollar exchange rate 0.45 pct up on Friday's close at 1.5241. (Latest investment-grade FX forecasts at our IMT site, Free access issued via this entrance-path).


China’s PM Wen stressed over the weekend that his country is facing significant downward pressure. Chinese CPI fell to 2.2% from 3.0%, which confirms the country’s slowing economic growth. Disappointing economic news from the US and Japan have reduced appetite for the AUD, which remains correlated with global growth (particularly China’s).

"Now seems a good opportunity for investors to take [profit on the AUD’s recent rally, so we should see this pair make further gains from its current 1.52 level," notes a currency market note from Caxton FX.

We see the pound to New Zealand dollar exchange rate has bounced off its three-month lows, helped by heavy losses in Asian stocks.

GBP-NZD is at 1.9512.

Sterling has suffered a sharp pullback from its May high towards 2.10 in the past six weeks but downside risks against the New Zealand dollar (Currency:NZD) are looking a little more limited now.

According to Caxton FX, it remains true that the antipodean currencies are likely to be at the front of the queue if and when risk and confidence does return, but another major rally in the NZD is looking increasingly unlikely.

"Sterling is trading at 1.95 this morning and we could see this upward correction run a little further, particularly if Asian stocks remain negative," say Caxton FX.