The British pound (GBP) continued to press higher in morning London trade today after both UK industrial and manufacturing production handily beat market forecasts. Meanwhile, the Australian dollar (AUD) staged a rebound despite another rate cut from the Reserve Bank of Australia (RBA) as investors seemingly took solace from the fact that this might be the last near-term rate reduction.
In the UK, the economic data continued to point to a strong expansion as both manufacturing and industrial production increased at the fastest rate in more than two years. Manufacturing rose by 1.9% versus 0.9% expected, while industrial output gained 1.2% versus 0.7% forecast.
UK economic data has now notched an impressive string of upside surprises, and all key sectors—services, manufacturing, and construction—are expanding well above consensus expectations.
See also: The Economic Boom Nobody Saw Coming
The positive news from the UK is finally translating into GBPUSD gains as well, and the pair spiked to a high of 1.5393 in the aftermath of the release. For the time being, stiff resistance at the 1.5400 figure is holding, but if the pair can clear that level, it could clear the path for a move towards 1.5700 over the next several weeks.
One key barrier will be Wednesday’s Bank of England (BoE) inflation report and speech by Governor Mark Carney, during which traders will be looking for any signs of dovishness from the new BoE chief. If Carney downplays the recent improvements in UK data, GBPUSD could trade off the recent highs, but if he assumes a more bullish posture, the pair could catapult through the 1.5500 level as markets will view his remarks as a green light for more appreciation.
Surprise Relief Rally in AUD/USD
Meanwhile, in Asia today, the RBA cut the benchmark rate by 25 basis points (bps) to 2.50% and went through its usual litany of statements noting that growth will remain below trend, that inflation will remain tame, and that the Australian dollar, despite having declined by more than 18% from its highs, still remains overvalued.
However, in its concluding paragraph, the RBA stated that, "At today's meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time."
The fairly neutral statement by the Australian monetary authorities, which offered no hint of any additional cuts in the near future, was taken positively by Aussie bulls, and AUDUSD rose throughout the European session, taking out the psychologically important .9000 level by mid-morning trade.
The next key event for AUDUSD will be the Australian employment report due on Thursday. If the data shows some stabilization, it would take the pressure off the RBA to ease further and could extend the AUDUSD recovery.
EUR/USD Breakout That’s Possible Today
In today’s North American trade, the economic calendar is relatively sparse with only the trade balance figures on the docket.
The EURUSD continues to trade in a very tight 1.3200-1.3300 range, having failed at the top end for several days in a row. However, given the general bid on high-beta currencies today, the pair my finally clear that barrier as the day progresses.
By Boris Schlossberg of BK Asset Management