Solid economic data from the UK and weakness on the commodity markets helped the GBP AUD exchange rate hit a nine-month high of 1.75 at the end of last week.
Economist Warnings Take Edge off RBA Optimism, Strong PMIs Boost GBP AUD
The GBP AUD exchange rate weakened on Monday thanks to quiet demand for Sterling on the May Day bank holiday.
A more upbeat assessment of the Australian economy from the Reserve Bank of Australia (RBA) failed to particularly buoy the Australian Dollar on Tuesday.
While the RBA statement claimed ‘GDP is forecast to increase by 2.5-3.5 per cent over 2017, with growth expected to remain a bit above potential throughout the rest of the forecast period’, economists warned that the bank was ignoring weak wage growth and inflation due to its focus on the overheating housing market.
‘The RBA may well tolerate a weaker first half and persistent sub target inflation while housing dynamics and financial stability remain top of its watch list but may find it more difficult to do so further into 2017 as these concerns begin to abate,’ explains Su-lin Ong, Chief Economist for the Royal Bank of Canada.
Meanwhile, the GBP AUD uptrend was started thanks to an above-forecast manufacturing PMI. Expectations had been for the index to weaken, but it instead rose from 54.2 to 57.3. The week’s construction, services and composite PMIs all also surprised with an increase, suggesting the UK economy may not have continued to weaken in the second quarter of the year.
This helped overpower fears that the Brexit negotiations were going to be harmed by souring relations between the UK and the EU. Amongst other developments, the Pound was softened by speculation that the divorce bill payable to the EU may cost as much as €100 billion (£84 billion); earlier estimates had put the cost around €60 billion (£50 billion).
GBP AUD exchange rates ended Friday 2.4% higher than the week’s low at around 1.74. Commodity price fears pushed the Australian Dollar down even further, thanks to the continued strength of Chinese stockpiles and a multi-month high in iron ore exports from Australia’s main shipping terminal weighing on prices.
Pound Inches Ahead after Poor Australian and Chinese Data
The only UK data released today was the Halifax house price balance, which clocked in at an above-forecast 3.8%.
A run of poor data is keeping the Australian Dollar below opening levels against the Pound today. Building approvals fell by -13.4% on the month in March – over three times the forecast decline – while annualised approvals declined -19.9%. This was almost double expectations.
Meanwhile, Chinese data showed imports grew 11.9% on the month in April, which seems impressive, but estimates were for an 18% uptick. This suggests weaker demand for Australian goods, which could hurt Australian exporters.
Quiet Week Ahead for GBP AUD until Bank of England ‘Super Thursday’?
The UK and Australian data calendars are sparsely populated for the majority of this week. Tomorrow sees the release of retail sales data for both the UK and Australia, in April and the first quarter respectively.
Chinese inflation figures tomorrow will likely have a significant impact upon the Australian Dollar; forecasts are for price growth to accelerate from 0.9% to 1.1%, which would support the ‘Aussie’ thanks to the prospect of improving consumer demand for Chinese goods.
As if UK industrial, manufacturing and construction data, trade figures and GDP estimates weren’t enough to contend with on Thursday, the day is also what is dubbed a ‘Super Thursday’, thanks to the announcement of the latest Bank of England (BoE) monetary policy decisions alongside the release of the meeting minutes and the new Inflation Report.
Thursday is therefore likely to be a busy day for the Pound.