It has been a choppy few days for the Pound Australian Dollar exchange rate. Last week saw GBP AUD fluctuate wildly, but by the weekend Sterling had managed to rise sharply and record gains of nearly a cent upon the week’s opening levels.
GBP AUD Weakens on Services PMI, Latest RBA Monetary Policy Meeting Changes Little
The latest UK services PMI confirmed market fears by falling to an 11-month low in August.
The index weakened from 53.8 to 53.2 instead of the consensus 53.5 held by economists.
While the Pound weakened against the Australian Dollar, the sell-off was limited as markets had already deserted Sterling on Monday following a disappointing construction PMI on Monday, which dropped from 51.9 to 51.1 instead of edging up to 52.
The Reserve Bank of Australia (RBA) left interest rates on hold again for the twelfth consecutive meeting during their latest monetary policy meeting on Tuesday.
Overall it seems that the board remains unlikely to cut interest rates in the future, but concerns regarding Australian Dollar strength and uncertainty facing the housing market remain.
Felicity Emmett of ANZ commented;
‘There was little substantive change to the RBA’s post meeting statement, although in our view the Bank’s outlook on the domestic economy seemed slightly more positive. The Bank highlighted the improvement in the non-mining investment outlook, and was slightly more upbeat about the near term outlook for the labour market.’
Australian Dollar Unsettled by GDP Data, Pound Boosted by UK Friday Data Slew
GBP AUD gained midweek on the back of some poor domestic ecostats released by Australia, which cut the appeal of the Australian Dollar.
Wednesday’s second-quarter GDP figures undershot forecasts by -0.1 points, with quarter-on-quarter GDP growth accelerating from 0.3% to 0.8% and year-on-year holding steady at an upwardly-revised 1.8%.
The AiG performance of construction index for August slumped from 60.5 to 55.3. This further supported the RBA’s decision to keep interest rates on hold for the time being, undermining Australian Dollar strength.
The Pound softened towards the weekend, despite poor Australian data, thanks to the debate in Parliament over the EU withdrawal bill.
The bill will enshrine EU laws into domestic legislation, but Labour and the Liberal Democrats are expected to vote against it due to some of the powers the government is trying to grant itself at the same time.
This undermined GBP AUD, despite the Australian trade data for July showing that the surplus tumbled from A$888 million to A$460 million instead of hitting A$1 billion as expected.
However, Sterling was able to rebound sharply on Friday after a slew of positive UK ecostats helped repair some confidence in the UK economy.
Manufacturing production bettered forecasts, as did the trade deficit, while the NIESR estimate of GDP for the three months to August hit 0.4% – up from the estimate of 0.2% for the three months to July.
GBP AUD Forecast: UK Inflation Data to Further Worsen Economic Outlook?
Tomorrow kicks off with Australian consumer and business confidence figures, but the main event of the day will be the UK’s consumer price figures for August. Overall inflation is expected to climb from 2.6% to 2.8%, while core inflation is predicted to climb from 2.4% to 2.5%.
This could weaken GBP AUD, as consumer spending will suffer but the Bank of England (BoE) is unlikely to raise interest rates in response.
Thursday will also be a volatile day for the Pound Australian Dollar exchange rate, given that Australian employment and joblessness data will be released and the BoE will make its latest interest rate decisions.