The British Pound to Australian Dollar (GBP/AUD) exchange rate has already seen notable gains this week. Despite persisting Brexit uncertainty, the Pound has been able to capitalise on the Australian Dollar’s broad risk-off weakness. The Australian Dollar is being hit lower by a combination of domestic and global concerns, including fires raging across Australia and market panic amid rising US-Iran tensions.
The Australian Dollar was initially resilient last week, but due to the US air strike at the end of the week its recovery against the Pound was limited and GBP/AUD ultimately sustained gains, closing the week at the level of 1.8800.
Continued market uncertainty and risk-aversion has deepened ‘Aussie’ losses this week and GBP/AUD has more easily surged to trend close to the level of 1.9092 at the time of writing.
While GBP/AUD has been unable to hold its best levels, it briefly hit a half month high of 1.9152 earlier today.
GBP Exchange Rates Strong in Hopes of UK Economic Performance and Brexit Progress
The Pound started the week off on a strong note, as yesterday’s final December UK services PMI beat projections.
It surprised investors as it followed last week’s deeper than expected manufacturing and construction PMI contractions.
With services just barely avoiding contraction, the overall composite PMI was pulled up slightly from the projected contraction of 48.6 to 49.3.
The data also indicated that the number of new order has risen notably, boosting market hopes that Britain’s economic activity will be more resilient in 2020 even amid continued Brexit uncertainty.
According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply:
‘Other clouds of uncertainty must also include the potential for further political instability as negotiators and policymakers take the next steps. But with the fastest level of job creation since the summer and a bounce in business optimism not seen since September 2018, commentators could be forgiven for believing there could potentially be a turning point on the horizon if the UK plays its cards right.’
On top of yesterday’s stronger UK data, the Pound is also being supported by anticipation that the next steps of the Brexit process will go smoothly – at least until the next stage of UK-EU negotiations begin and dominate 2020.
AUD Exchange Rates Faces Brunt of Market’s Risk Aversion
The Australian Dollar is a currency that is typically influenced by market risk and trade-sentiment. With markets already in fresh panic since the turn of the New Year, the ‘Aussie’ has been hit harder than most major currencies.
At the end of last week, the US suddenly ordered an air strike to kill Iranian General Qassem Soleimani. The news shocked markets amid expectations that conflict could escalate further, causing a notable risk-off mood.
Investors sold the Australian Dollar in the risk-off movement, but the ‘Aussie’ has also had to contend with domestic concerns.
A worsening bushfire crisis has been covering significant portions of Australia, and concerns are rising about the catastrophe’s impact.
As the crisis is becoming worse than some analysts expected, analysts are ramping up warnings about its potential impact on Australian economic activity. According to Catherine Birch, Senior Economist at ANZ:
‘In the final two weeks of December, the number of job ads declined by more than we would expect for that time of the year, suggesting that the escalating bushfire crises had an impact,
The current bushfires could see a short-term negative impact on employment.’
GBP/AUD Exchange Rate Forecast: Could Australian Data Help ‘Aussie’ to Steady?
The Australian Dollar remains one of the currencies suffering most from geopolitical crises and events in recent sessions, even as markets cool slightly from the weekend’s shock US-Iran tensions.
However, if markets continue to calm, there are signs of efforts to soften tensions, or signs of improvement with Australia’s bushfire crisis, the Australian Dollar may quickly recover some of its recent losses.
Amid a lack of notable UK data due for publication in the coming sessions, the Pound to Australian Dollar is more likely to be driven by Australian news or data overall.
If tomorrow’s Australian building stats, Thursday’s trade balance figures or Friday’s retail sales results beat forecasts, the Australian Dollar could find more solid support.
As for the Pound, any surprising Brexit developments are the only thing likely to cause big Pound movement.
Even an upcoming Thursday speech from Bank of England (BoE) Governor Mark Carney may not do much to drive the Pound to Australian Dollar exchange rate in the coming sessions unless Carney takes a surprise shift in stance.
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