Despite broad market hopes that the global growth and trade outlooks will improve in 2020, market risk and trade sentiment dipped today and the British Pound to Australian Dollar (GBP/AUD) exchange rate was able to more easily hold this week’s advances. The Pound lacks the drive to advance much higher though, and if upcoming Australian data disappoints or the Pound weakens again, the pair could quickly fall back.
Since opening this week at the level of 1.8740, GBP/AUD has spent most of the week trending higher as the Australian Dollar has been lacking in drive and Sterling benefits from rival strength.
At the end of the year, GBP/AUD touched on a weekly high of 1.8919. While GBP/AUD has been unable to hold that high, the pair trended relatively close to those highs in the region of 1.8867 at the time of writing today.
GBP Exchange Rates Pressured by Deeper UK Manufacturing Contraction
The Pound fell back from weekly highs today, as markets prepared for what was expected to be a 2020 of Brexit uncertainty and lasting weakness in Britain’s economic activity.
Investors sold the Pound, adjusting positions on the British currency due to anxiety ahead of the formal Brexit date less than a month away, as well as how the Brexit process will unfold over the coming year.
According to Lee Hardman, Currency Analyst at MUFG:
‘The Pound was the second worst performing G10 currency overnight amid thin liquidity as markets grow nervous that the recent rally in the pound was overdone,
At the moment there is still significant uncertainty about the macroeconomic direction over the next few months and so we expect the Pound could be more sensitive to data releases going forward,’
On top of Brexit jitters, the Pound’s appeal was further weighed by Britain’s latest manufacturing PMI results.
The PMIs fell short of projections with an even deeper than expected contraction of 47.5. According to Rob Dobson, Director at IHS Markit:
‘The UK manufacturing sector took a turn for the worse at the end of 2019. Output fell at the quickest pace in seven-and-a-half years as new order inflows decreased and Brexit safety stocks were reduced. With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs cut for the ninth successive month’
However, despite these downside pressures, the Pound ultimately avoided major losses against a weaker Australian Dollar.
AUD Exchange Rates Lack Fresh Support as Rival Currencies Rebound
The Australian Dollar saw strong demand last week, as the risk and trade-correlated currency benefitted from hopes that US-China trade relations and global growth would continue to improve over the coming year.
However, this week’s ‘Aussie’ movement has been weaker.
The US Dollar (USD) has been rebounding today following weeks of weaker performance. As the US Dollar rebounds strongly, the Australian Dollar slumps and this is making it easier for GBP/AUD to hold this week’s gains.
On top of US Dollar weakness, the Australian Dollar is being weighed by this week’s Australian data.
Australian manufacturing PMI data from CommBank fell short of projections during today’s Asian session, contracting at 49.2 rather than the expected 49.4.
The trade-correlated Australian Dollar was also weakened by today’s weaker than expected Chinese manufacturing data.
Signs of weakness in manufacturing weighed on global growth and trade optimism. While the Australian Dollar outlook is currently fairly optimistic, this is keeping AUD under pressure and making it easier for GBP/AUD to avoid losses.
GBP/AUD Exchange Rate Forecast: Trade Developments Remain in Focus
The US and China are still expected to sign the ‘phase one’ trade deal imminently, and the pomp around the signing has boosted market hopes that relations between the nations will remain optimistic.
If there are solid or optimistic US-China trade developments, the Pound to Australian Dollar exchange rate could be in for fresh losses as this would boost the trade-correlated Australian Dollar.
However, Australian Dollar demand remains limited amid rival strength.
Friday will see the publication of the latest Federal Reserve meeting minutes. If the Fed news is more hawkish than expected, the US Dollar (USD) could strengthen and push the Australian Dollar lower.
The Pound, on the other hand, may remain under pressure amid a lack of solid support. Tomorrow’s UK construction data is unlikely to influence the Pound much, and investors remain anxious about the Brexit process.
Looking ahead to next week, UK and Australian services and composite PMIs on Monday could also influence the Pound to Australian Dollar exchange rate.
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TAGS: Pound Australian Dollar Forecasts