Diminishing Business Investment Weighs on Pound Australian Dollar (GBP/AUD) Exchange Rates
The Pound Australian Dollar (GBP/AUD) exchange rate plummeted by over 1% on Monday, falling as investors reacted to a gloomy report on UK business investment and a contrasting surge in Australian retail sales.
According to the manufacturing body ‘EEF’ and accountancy advisers ‘BDO’, the outlook for UK manufacturers has worsened in recent months, with the EEF asserting that growth was looking ‘fragile’.
EEF Chief Economist Lee Hopley said:
‘…the durability of this upturn is looking somewhat more fragile as many of the positive forces driving expansion last year, such as a resurgent Eurozone, a surge in global manufacturing investment and a competitive pound, are starting to fade’.
‘New, or heightened uncertainties have also come into play, not least what feels like crunch time in the Brexit negotiations, which have led to amber lights flashing again on the business investment outlook.
This attitude limited demand for the Pound.
In other, slightly better news, Markit’s latest UK construction PMI held steady at 52.5, beating the forecast of a fall to 52.0.
This result boded well for the UK’s economy, but largely played second-fiddle to the gloomy reports on business optimism.
Australian Dollar (AUD) Exchange Rates Bolstered by rise in Retail Sales
The Australian Dollar (AUD) roared ahead on Monday, propelled by a better-than-expected retail sales print and a rise in consumer price inflation estimates.
According to the Australian Bureau of Statistics, retail sales in Australia climbed by 0.4% in April, in contrast to the market forecast of 0.3%.
This surge came after a flat result in the previous month and a rather patchy performance throughout December and February.
Whilst this result was positive, the outlook was limited by the yearly reading, which fell from 3.2% to 2.6%.
Matthew Hassan, Research Analyst at Westpac, shared his thoughts on the results:
‘Overall, the tone in this month’s retail report is slightly better than expected, but there are still clear areas of weakness. Exactly how much of this is a sector specific issue remains an open question that the wider consumer spending estimates in the March quarter national accounts will go some way towards answering’.
In other news, TD securities’ latest inflation estimate printer higher at 2.1%, up from 2.0% in May.
Pound Australian Dollar (GBP/AUD) Exchange Rate Forecast: RBA Rate Decision LOOMS
The outlook for the Pound Australian Dollar (GBP/AUD) exchange rate is currently rather mixed.
Investors are not currently expecting a rate hike to occur at tomorrow’s meeting, but there is still room for the Reserve Bank of Australia (RBA) to take an increasingly hawkish, or optimistic stance in its accompanying statement.
Indeed, investors are still open to the possibility that the central bank will raise interest rates sometime in 2018 – data permitting – and if the bank points to this possibility then we could see GBP/AUD facing even more pressure.
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