The Pound to Australian Dollar exchange rate has tumbled since markets opened this week. While GBP has been supported by the latest British data, this week’s risk rally (bolstered by optimism in commodity markets) has thus far kept Sterling at bay versus the ‘Aussie’. The interbank GBP/AUD exchange rate held 1.70 at the time of writing.
Pound (GBP) Edges Away from Worst Levels due to Strong Manufacturing Performance
Demand for the Pound has been weak for the last few weeks amid a lack of fresh supportive factors in the form of domestic data or optimistic Brexit news.
Traders are growing increasingly concerned that the UK’s economic performance will begin to suffer as the formal beginning of the Brexit process approaches.
However, Tuesday’s UK December Manufacturing PMI from Markit was highly impressive. The figure was expected to slip from 53.4 to 53 but instead improved to 56.1 – its best result since June 2014.
The activation of Article 50 is mere months away, but this result improved hopes that Britain’s solid economic performance may continue for a while longer.
Australian Dollar (AUD) Demand Improved by Australian Data and Risk-Rally
This week’s Australian Dollar support factors are quite solid. The antipodean currency began trading strongly as soon as Tuesday’s Asian session began, partially due to the market’s current risk-on movement and also due to Australia’s own impressive Manufacturing figures.
The AiG’s December Australian Manufacturing PMI was projected to fall from 54.2 to 52.2 but the figure instead came in at a strong 55.4. This has also helped the ‘Aussie’ outperform its commodity-correlated peers.
Demand for the ‘Aussie’ was boosted further by news that iron ore prices improved a whopping 81% in 2016 overall. Prices of the commodity continued to perform strongly this week due to supply restraints and hopes for further solid performance in 2017.
GBP/AUD Forecast: Is This Week’s Risk-Rally Limited?
The appeal of the Australian Dollar is heavily linked to risk appetite and as January draws on and the US economy comes into focus again investors may ditch risky assets in favour of their safe-haven rivals.
Data due for publication over the next few days may also influence the Pound to Australian Dollar exchange rate. Wednesday will see the publication of Britain’s December Construction PMI and November consumer credit figures.
Thursday will follow with December Services PMIs for Australia and Britain, as well as UK Composite PMI from Markit. If these follow Tuesday’s manufacturing figures and beat expectations, GBP/AUD could recover its Monday and Tuesday losses and even end the week higher.
The Pound to Australian Dollar exchange rate will see even stronger upside potential if iron ore prices begin to fall, as some analysts predict they will.