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AUD/GBP Hits Two-Week High as Chinese Trade Prompts Iron Ore Surge

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The Australian Dollar appreciated against the Pound this week in the wake of recent Chinese data and the accompanying surge in iron ore prices.

China posted a significant rise in its June trade surplus as well as an increase in lending for the same month, figures that raised trader optimism for the Chinese economy and indirectly pushed the Australian Dollar higher.

The ‘Aussie’ Dollar’s connection to the Chinese economy lies in China’s vast consumption of steel, an alloy that requires iron to produce (iron being one of Australia’s largest exports). So when it was revealed today that China’s year-on-year iron importation surged 16% in June, (pushing the daily average to a record high) the ‘Aussie’ Dollar picked up significant gains as a result.

The Australian Dollar’s surge was also assisted by the recent drop in the US Dollar as investor appetite for higher risk currencies increased.

AUD Volatility Expected with July RBA Meeting Minutes on the Horizon

Next week AUD movement is likely to follow the release of the Reserve Bank of Australia’s (RBA) meeting minutes for July (due Tuesday). As predicted the RBA left the interest rates unchanged at the record low of 1.5% during that meeting, asserting that the Q1 GDP growth was only temporary and that the economy is strengthening gradually.

Whether anything of note will be recovered from the minutes is questionable, as the minutes are only likely to reiterate the RBA’s reluctance to make any changes to monetary policy.

Regardless, with China’s massive appetite for iron ore propelling the ‘Aussie’ economy there may well have been room for some hawkish theory-crafting during the meeting – enough to perhaps provide the antipodean currency with a lift next week.

GBP Assisted by Hawkish Ian McCafferty Statement

The Pound Australian Dollar exchange rate has been shielded somewhat after hawkish remarks from Bank of England (BoE) policymaker Ian McCafferty propelled Sterling.

McCafferty asserted that the BoE should consider beginning discussions regarding the withdrawal of its quantitative easing scheme, insisting that it would be ‘remiss’ for them to not at least consider it.

Additionally McCafferty asserted that he would, again, be inclined to vote for a rate increase at this month’s meeting – McCafferty being one of the three who voted for a rate hike at the previous gathering.

This was not entirely unexpected, but his comments on the winding back of the quantitative easing scheme were perceived as particularly pertinent, pushing Sterling and indeed presenting it as a better option to investors than the Euro, which ends the week increasingly embroiled in mixed messages regarding future monetary policy.

AUD/GBP Forecast: Could the Australian Dollar’s Rally be Short-Lived?

The movements for this pairing will predominantly derive from July’s RBA meeting minutes and the run of UK inflation data, which is due next week.

Should the final UK inflation figures present significant growth, then murmurings regarding the possibility of a UK rate hike will grow, and with them; demand for Sterling. This could be enough to outpace the commodity driven ‘Aussie’ Dollar, especially if the July RBA meeting minutes disappoint and iron ore stumbles – events that will likely end its rally.

Recent Interbank AUD GBP Exchange Rates

At the time of writing, the Australian Dollar to Pound Sterling (AUD GBP) exchange rate was trading at 0.5971 and the Pound Sterling to Australian Dollar (GBP AUD) exchange rate was trading at 1.6740.