May’s call for a snap election is the catalyst for Pound strength

Sterling has rallied against the Australian Dollar of late. The most significant move came following Theresa May’s announcement that there would be a snap election on 8th June. Historically a snap election should weaken the currency in question, however on this occasion the opposite occurred. The PM’s move to call an election at this stage is a shrewd one, Sun Tzu would approve. Calling an election when the competition is so weak almost guarantees a conservative victory. The conservatives are deemed to be a far better option for the UK economy, this boosted investor confidence and the value of the Pound.

Is there Australian Dollar set for further losses?

Despite the surge in Sterling strength, I still feel the Pound is undervalued against the Australian Dollar. There are problems starting to surface in regards to the ever increasing property prices in high wage areas such as Melbourne and Sydney. Some believe the increases to be unsustainable, the problem is not seeming to go away with overseas investors willing to pay the over inflated prices.

The heavy reliance on the Chinese is also a cause for concern. Especially as it is very difficult to judge the true health of the Chinese economy due to the amount of debt that can be attributed to shadow banking. If growth continues to fall in China it will have an impact on the Australian dollar due to the lack of appetite for raw materials. Keep an eye on Chinese manufacturing data on Sunday during the early hours, I would expect to see a contraction which could benefit Australian Dollar buyers.

When should I move?

GBP-AUD If I was buying Australian dollars short term, despite the fact there is potential for further movement in my favour I would be very tempted to take advantage of current levels. When I trade, I like to move in tranches, hedging my bets. Trading a tranche on a seven month high would definitely be tempting.

Longer term a limit order should be considered. A limit order is a useful tool if you are dealing in a currency effected by a different time zone. Data releases can come through during the middle of the night and you could miss an opportunity.

A limit order enables you to pick a target rate of exchange and should the market move to a position where your target becomes available the limit order will trigger. If I had a three month time scale I would be looking at around 1.77, I think 1.80 could be a point of resistance.

AUD-GBP – I would not be hanging around selling the Australian dollar. I would not be procrastinating, hoping for small gains. Keep in mind in August 2015 GBP/AUD sat above 2.20.

Thank you for reading my Australian Dollar report. For more information on what could affect the Australian Dollar in the short term, feel free to email me here and Ill be happy to reply personally.

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