The Pound to Australian Dollar exchange rate advanced from 1.63 to 1.64 last week thanks to optimistic UK stats, but Monday’s UK PMI disappointed and caused GBP/AUD to give up a brief high of 1.65
Pound (GBP) Gains Ease as UK Manufacturing Slows
The Pound recorded gains against most its major peers last week as investors became hopeful that Brexit negotiations will be amicable following early comments from EU leaders as Article 50 was finally activated. News that Britain’s current account deficit lightened considerably in Q4 2016 also boosted GBP exchange rates.
But the Pound rally ended abruptly on Monday morning as Britain’s manufacturing PMI from March came in below expectations.
Markit’s report showed that UK manufacturing activity slowed to 54.2 in March despite being expected to improve to 55.1. What’s more, the February figure was revised lower from 54.6 to 54.5.
This increased concerns that Britain’s economic activity in the construction and services sectors may also be worse-than-expected in March.
Australian Dollar (AUD) Slumps as Domestic Retail Sales Fall
The Australian Dollar was one of the worst performing major currencies on Monday as investors reacted to disappointing ecostats.
While the day’s data was generally mixed, one report stood out. Australia’s February retail sales results came in well below expectations, which made AUD investors jittery ahead of Tuesday’s Reserve Bank of Australia (RBA) policy meeting.
Consumer spending slowed by -0.1% month-on-month in February, failing to show the expected 0.3% gain. The latest Australian manufacturing PMI from AIG also worsened from 59.3 to 57.5.
As a result of Monday’s poor Australian data, the ‘Aussie’ failed to benefit from a stronger than expected building permits print from February. Building permits improved from 2.2% to 8.3% month-on-month and from -11.6% to -4.6% year-on-year.
GBP/AUD Forecast: RBA Decision Ahead
Tuesday’s session could be a big one for the Australian Dollar as the Reserve Bank of Australia (RBA) will be delivering its latest policy decision.
While no change in monetary policy is expected, traders are eager to see if there has been any shift in tone from policymakers.
In recent months, the RBA has been cautiously optimistic and has taken a neutral tone. However, the minutes of the last meeting indicated that the RBA was still concerned about a potential housing bubble in Australia.
If the RBA’s tone becomes even more dovish, the Australian Dollar is likely to fall this week. Tuesday’s Australian trade balance results may also have an effect on AUD.
Wednesday’s UK services PMI for March is also likely to influence GBP/AUD later in the week.
As Britain’s services sector accounts for over 70% of total growth, a worse-than-expected services score could increase concerns about the mid to long-term health of Britain’s economy and cause the Pound to Australian Dollar exchange rate to fall from its recent highs.