Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
GBP jumps as Sunak calls snap election
The Brish pound was stronger overnight after UK Conservative prime minister Rishi Sunak called a snap general election for 4 July that seems likely to see a change of government.
Sunak was required to hold an election by January 2025 and is currently 20 points behind the opposition Labour party according to Sky News.
Perhaps more importantly, the GBP was also boosted by a higher-than-expected inflation reading overnight, with headline annual inflation at 2.3% (versus 2.1% expected) and core inflation at 3.9% (versus 3.6% expected).
The GBP/USD hit two-month high before easing. The British pound was higher in other markets with AUD/GBP falling to three-week lows and GBP/SGD at nine-month highs.
NZD higher as RBNZ warns of further hikes
In other markets, the US dollar extended its recovery, with the USD index higher for the third-consecutive day.
The Australian dollar continued to reverse from four-month highs with the AUD/USD down 0.7% yesterday.
The NZD/USD jumped to two-month highs after yesterday’s Reserve Bank of New Zealand decision, but the move was short-lived.
The RBNZ said it considered raising rates in yesterday’s decision and that sticky inflation means the central bank might need to tighten policy further.
Cocoa price stands out in commodity rally
Commodity prices have continued to rally with the CRB commodity index at the highest level since the Russian invasion of Ukraine and close to the highest level since the historic post-GFC rally in 2011.
Due to severe supply shortages in the dominant West African cocoa regions, prices have skyrocketed through 2024 to theoretically all-time highs, most recently around $12,000/tonne (not shown in chart).
Although additional short-term price increases are not completely ruled out, we anticipate that cocoa prices will decline to about $6,000 over the medium term as the deficit narrows. At that point, prices should trade structurally higher for longer, creating opportunities for on-farm investment in cacao tree stock and yield improvement.
So far, the commodity rally hasn’t notably supported commodity prices like the Australian or Canadian dollars. However, commodity prices can have a lagging impact on FX markets, so sustained gains could be supportive in the second-half of 2024.
USD stronger for third day
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 20 – 24 May
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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