Earlier this week, the British Pound to Australian Dollar (GBP/AUD) exchange rate slipped on Brexit uncertainties, as well as a surprisingly neutral tone from the Reserve Bank of Australia (RBA) lightening some of the market’s bearishness on the Australian Dollar. Global trade uncertainties persisted on Wednesday, but GBP/AUD failed to climb again.
Last week saw significant GBP/AUD gains and as the pair surged from 1.7525 to 1.8011, and even briefly touched a 3-month-high of 1.8050 on Friday. Since then, GBP/AUD has shed some of those gains and trended near the level of 1.7873 at the time of writing. Despite the factors weighing on the Australian Dollar, GBP/AUD has been unable to advance.
GBP Strength Limited as Services Report Shows Uncertain Business Outlook
Wednesday saw the publication of Britain’s August services PMI from Markit.
Unlike the manufacturing and construction figures from earlier in the week, the UK services figure actually beat forecasts.
UK services were predicted to have risen from 53.5 to 53.9, but instead jumped to 54.3. As services make up a notable portion of Britain’s economic activity, this typically would have been supportive for the Pound.
However, as the report also revealed that businesses were highly uncertain about Britain’s economic outlook amid the Brexit process and recent global trade tensions, the Pound failed to capitalise.
According to Chris Williamson, Markit’s Chief Business Economist, the latest data indicates that Britain’s economic outlook is worsening:
‘Business expectations for the year ahead meanwhile sank markedly lower, down across all three sectors to one of the lowest levels seen since the EU referendum, largely reflecting increased anxiety over Brexit negotiations.
Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside.’
Essentially, Brexit uncertainties continued to keep downside pressure on the Pound and the UK economic outlook.
This week’s developments in Brexit and Bank of England (BoE) news have only given the Pound some minor support, as Brexit fears remain the dominant mood in Pound movement.
UK Brexit Minister Dominic Raab remained optimistic about Brexit negotiations, saying that the feedback the UK government received on its Brexit plan was positive and constructive.
Sterling was also slightly supported by hopes that BoE Governor Mark Carney would be asked to formally extend his term as Governor. This would improve the consistency of the BoE outlook.
AUD Supported by Surprisingly Strong Australian Economic Growth
The Pound was weighed by Brexit uncertainties on Wednesday, but was also unable to advance against the Australian Dollar due to factors supporting the ‘Aussie’.
While persistent factors like worsening US-China trade tensions and rising mortgage rates in Australia continued to limit the Australian Dollar’s strength, this week’s Australian news has largely prevented further losses for the embattled currency.
On Tuesday, the Reserve Bank of Australia (RBA) took a surprisingly neutral tone about Australia’s economic outlook, despite mixed data, trade jitters, political uncertainties and Westpac’s plans to hike its mortgage rates.
As investors had feared a slightly more dovish tone from the RBA, this helped the Australian Dollar recover from its recent lows.
Then, on Wednesday, Australia’s Q2 Gross Domestic Product (GDP) growth rate results were published, with the most major prints both beating forecasts.
Quarterly growth was predicted to slide to 0.7% but printed at 0.9%, while the yearly figure unexpectedly rose from 3.2% to 3.4% rather than the expected 2.8%. These gave additional support to the Australian Dollar.
GBP/AUD Forecast: Australian Trade Uncertainties Take Focus
Despite this week’s strong Australian data, the Pound to Australian Dollar exchange rate is less than two cents below its best levels in three months.
This is because concerns about US-China trade tensions and the possibility of Australia’s economy being impacted by a potential trade war remain a core concern for investors of the relatively risky trade-correlated ‘Aussie’.
As a result, Thursday’s Australian trade balance data from July could prove influential. It will give investors a better idea of how Australian trade has been influenced by trade jitters in recent months.
If Australia’s trade data impresses, it may help push the Pound to Australian Dollar exchange rate lower towards the end.
GBP/AUD is even more likely to fall if Brexit uncertainties worsen again, or if Bank of England (BoE) Governor Mark Carney does not extend his term at the helm of the bank.
Of course, with US-China trade tensions in focus again, risk-sentiment will continue to drive the Pound to Australian Dollar exchange rate too.
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