Week Ahead, May 4

Short Description

The British Pound vs. the Aussie dollar (GBP/AUD) just hit 3-month lows and it just so happens the two respective central banks decide interest rates this week. We contrast the outlook for the Reserve Bank of Australia with the Bank of England to get an idea where the GBP/AUD – as well as AUD/USD and GBP/USD might be headed next.

Video Script

Hi everyone!

The Australian dollar has been surging. It just reached its highest against the British pound since JANUARY- right before stock markets started crashing. And both the Aussie and the pound just made monthly highs over the US dollar. This week the Reserve Bank of Australia and the Bank of England set interest rates. So in this video I’m going to look at what these central bankers might have planned and how it could affect these currencies.

Now before I rundown the top things to watch in the economic calendar this week, can I ask that if you’re interested in trading forex markets and you’re glad I’ve made this video, please click that like button and the YouTube algorithm will make sure more people see it, which means we can keep producing more free content.

Ok I will discuss those two big central bank meetings in a minute but otherwise this week is laden with PMIs – we’re looking for a bit of a recovery in activity as countries ease lockdown measures in April so let’s see if the data live up to that expectation. I think generally we’re looking at it as good PMI data, bad for the dollar and the yen – good for most other currencies. On Thursday Chinese export data will be worth watching before non-farm payrolls on Friday. The US unemployment rate is expected to go to 14% in April, that’s the highest number of Americans out of work since the Great Depression in the 1930s!

Let’s start with the Aussie. I mentioned the rise in the Aussie in a video a few weeks ago in relation to Chinese GDP figures and it has kept up the strength since then. Let’s do a quick rewind- In March the Australian central bank – the RBA - cut interest rates to a record low of 0.25% and started “unconventional monetary policy” for the first time. The unconventional bit is that they are buying government bonds to control bond yields. In my opinion, one of the primary reasons for the Aussie moving up is that the RBA’s bond buying is less aggressive than the UK or US and will probably stop sooner. Why? Because Australia is handling the coronavirus pandemic better with a much lower number of virus cases which means it can reopen its economy quicker. Watch out for what Governor Philip Lowe says about ending the bond buying sooner.

What about the pound? Well Prime Minister Boris Johnson is back at work after contracting the coronavirus and has so far confounded hopes that he might reopen the UK economy quicker. The UK has been one of the countries hit hardest by the pandemic and also has the uncertainty of trade negotiations with the EU. It stands to reason that the Bank of England will have to hold down interest rates at the record low of 0.1% and keep buying bonds for longer than Australia in order to support the economy. It’s unlikely that more action is taken this week so all the emphasis will be on the central bank’s quarterly forecasts. And in case you missed it, Governor Andrew Bailey recently said a 35% plunge in UK GDP in April through June is “not implausible.”

Good luck with trading this week, and make sure to subscribe so you don’t miss our next video.