The Pound to Australian Dollar exchange rate headed higher during Monday’s session, as poor UK manufacturing data was unable to keep Sterling from advancing against a weaker Australian Dollar. The ‘Aussie’ weakened in anticipation of the RBA’s August rate decision, but after the policy meeting GBP/AUD actually began to drop again, falling below 1.7500.
Pound (GBP) Relieved as Construction Beats Expectations
Demand for Sterling was undermined at the start of the week as the rate of contraction in the UK manufacturing sector was sharper in July than previously estimated. Manufacturing was expected to contract at 49.1 in July after preliminary scores disappointed in late-July.
However, the final July score of 48.2 disappointed investors, undermined the Pound and increased bets that other figures due this week would also be worse than anticipated.
As a result, investors readjusted bets on Tuesday’s Markit Construction PMI to a reading of 44.
However, the actual score came in at 45.9, slipping only slightly from June’s contraction of 46. This relieved the Pound slightly and put the currency in a slightly stronger position.
Unfortunately the figure was hardly optimistic overall. According to Markit and CIPS, the July score of 45.9 was the biggest monthly contraction since 2009. Commercial building was the area hit the hardest during the month.
Reserve Bank of Australia (RBA) Cuts Australian Interest Rate
The Reserve Bank of Australia (RBA) held its highly anticipated August meeting during Tuesday’s Asian session and cut the Australian interest rate from 1.75% to a record low of 1.50% – as some analysts had expected to be the case.
The Australian Dollar has remained under pressure in recent days as mixed Australian inflation data left investors unsure as to whether a rate cut was likely or not. The ‘Aussie’ sank throughout the week and as a result, a rate cut was largely priced into the currency’s value before it occurred.
As a result, the ‘Aussie’s losses following the meeting were minimal. A lack of indication on what the central bank’s next moves will be also left investors on the fence about the Australian Dollar, but likely increased anticipation for the publication of the meeting’s minutes on Friday.
Markets are already weighing up the chances of a November rate cut in response to the news, but without further information the ‘Aussie’s movement on Tuesday was mixed.
GBP/AUD Forecast: More UK PMIs, BoE Meeting Ahead
The Australian Dollar’s movement may remain mixed as the week continues as domestic data is limited until Friday and the publication of the Reserve Bank of Australia’s (RBA) August meeting minutes.
As a result, Sterling is more likely to be the driving force in GBP/AUD volatility, with the pairing likely to experience some fluctuations on Wednesday in response to the last of the UK’s PMI reports.
These PMIs include Services (the sector which accounts for the largest proportion of UK GDP) and the overall Composite figure. Currently, both scores are forecast to maintain their preliminary July scores of 47.4 and 47.7 respectively.
Following July’s disappointing Manufacturing data, it is possible that Services will also come in below expectations. Such a result may weaken Sterling.
That being said, Sterling’s movement may be muted regardless as investors await Thursday’s highly anticipated Bank of England (BoE) meeting.
The bank is currently expected to be preparing an aggressive easing package, including a rate cut from 0.50% to a new record low of 0.25%. All things considered, it seems that GBP/AUD has a better chance of losing value in the coming week than recovering it.