The Pound Australian Dollar exchange rate managed to make some strong advances last week, but poor trade data on Friday saw Sterling cede gains from the previous four days. GBP AUD closed the week in the region of 1.6945.
PMIs Bode Ill for UK Economy, While Australian Interest Rate Outlook Remains Unchanged
GBP AUD exchange rates started the week on the decline, although both the UK and Australia released some disappointing data.
The more influential of the releases was the UK manufacturing PMI for June from IHS Markit, which showed a greater-than-expected slowdown in the pace of expansion. The index fell from 56.3 to 54.3, hitting its lowest level since February.
This allowed the Australian Dollar to advance, despite a weakening in the TD Securities inflation estimate. Using the same methodology as the Australian Bureau of Statistics, TD Securities provides a monthly estimate of inflation, as the official figures are only released once a quarter.
The outlook for price growth in June fell from 2.8% year-on-year to 2.3%, so the ‘Aussie’ was lucky that the Pound was battling serious headwinds.
Tuesday saw the GBP AUD exchange rate rebounding sharply, however, after the latest Reserve Bank of Australia (RBA) monetary policy meeting. The RBA held rates and indicated that they would remain neutral towards changes in policy for some time.
This disappointed investors, who had hoped a cautiously optimistic outlook from the Bank of England (BoE) and the Bank of Canada (BOC) recently may have lent confidence to Australia’s policy setters.
A poor showing from the UK construction PMI wasn’t enough to prevent the Pound from taking advantage of the pessimistic outlook on Australian monetary policy. The index slipped from 56 to 54.8, slightly below the score of 55 predicted.
Strong US Data Undermines Australian Dollar, despite Boost from Surging Trade Surplus
The Pound was able to rebound higher on Wednesday, even though the services PMI dropped marginally further-than-expected. However, because the manufacturing index had performed so badly, markets were anticipating the worst. The fact the index only fell -0.4 points in total to 53.4 was therefore met with some relief.
Australian trade figures for May briefly tipped GBP AUD into a decline on Thursday morning. The trade surplus was expected to rise from AU$90 million to AU$1.1 billion, but instead swelled to AU$2.4 billion.
However, strong US data in the afternoon undermined appetite for the risky Australian Dollar, helping the Pound to recover.
Slew of Poor Production Data Causes GBP AUD to Slump
After reaching a one-month peak of 1.7115 very early on Friday morning, GBP AUD quickly dropped to a three-day low of 1.6928.
This followed the release of UK industry, manufacturing, construction and trade data, all of which disappointed forecasts and soured impressions of the economy’s performance in June.
Industrial production was expected to grow 0.5% on the month, but instead fell -0.1%, while manufacturing production slipped -0.2% instead of expanding by the forecast 0.4%. Construction output dropped -1.2% instead of growing 0.7%.
Rounding off the disappointing data, the trade balance figures revealed a deficit a billion pounds larger-than-expected at -£11.8 billion.
Will UK Wage Growth Weaken Pound Australian Dollar by Remaining Sluggish?
It is not the biggest week for UK or Australian data, but there are a few releases that will be particularly noteworthy.
Tomorrow’s Australian NAB business confidence and Wednesday’s Westpac consumer confidence figures will help gauge sentiment amongst households and the private sector.
Wednesday’s biggest driver of movement for the GBP AUD exchange rate, however, will be the UK’s average weekly earnings figures. With inflation surging, UK household budgets are being squeezed by a combination of rising prices and sluggish earnings growth. Continued weakness here will therefore bode ill for the future of consumer spending; a key economic driver for the UK.
On Thursday the Chinese trade balance and Australian consumer inflation expectation data will create volatility for the ‘Aussie’, while those interested in the Pound will be awaiting the Bank of England’s Credit Conditions & Bank Liabilities Surveys.