Pound Australian Dollar (GBP/AUD) Exchange Rate Shrugs Off Near-Stagnant UK Construction PMI

Underwhelming UK PMIs Fail to Impact Pound Australian Dollar (GBP/AUD) Exchange Rate

While both the UK manufacturing and construction PMIs underperformed against forecasts in January, this has failed to dent the Pound to Australian Dollar (GBP/AUD) exchange rate.

Markets were quick to shrug off the more negative implications of the disappointing data, instead focusing on signs of increasing price pressures evident within the manufacturing sector.

As this could be a precursor to a further increase in domestic inflation it naturally raised hopes that the Bank of England (BoE) could be prompted to tighten monetary policy again in the near future.

Even so, with Brexit-based uncertainty still looming large over the economic outlook the upside potential of the Pound (GBP) remained somewhat limited ahead of the weekend.

AUD Exchange Rates Weaken Ahead of Forecast Improvement in US Jobs Data

Although the fourth quarter Australian producer price index figures showed an improvement, this did not knock the GBP/AUD exchange rate off its uptrend.

The modest uptick in producer price pressures on the quarter bodes well for Australia’s inflationary outlook, as this increase is likely to filter through into the consumer price index in the coming months.

However, the Australian Dollar (AUD) was unable to capitalise on the data as markets braced for this afternoon’s US non-farm payrolls report.

With forecasts pointing towards stronger wage growth and an improvement in the headline payroll figure the US Dollar is likely to strengthen further, to the detriment of AUD exchange rates.

While the odds of a March interest rate hike from the Federal Reserve have already picked up a strong showing here could see investors taking an even more hawkish stance.

Stronger UK Services PMI May Boost GBP/AUD Exchange Rate Further

Confidence in the Pound could pick up if Monday’s UK services PMI prints positively, keeping the GBP/AUD exchange rate on a stronger footing.

As the service sector remains the primary driving force of the UK economy any signs of strength here could easily outweigh the negatives of the manufacturing and construction PMIs.

On the other hand, if the index fails to hold its ground this could point towards a general loss of economic momentum at the start of 2018, denting GBP exchange rates.

Developments surrounding Brexit look set to remain a key headwind for Sterling over the coming weeks, with markets still lacking in any particular sense of clarity over the likely shape of the future relationship between the UK and EU.

Australian Dollar (AUD) Gains Unlikely With RBA Forecast to Remain on Hold

Further support for the GBP/AUD exchange rate could materialise on the back of January’s TD Securities inflation estimate.

If the estimate fails to reveal that inflationary pressure within the Australian economy is continuing to build, the mood towards the Australian Dollar is likely to sour further.

An upside surprise here may not be enough to boost AUD exchange rates, however, as investors adopt positions ahead of Tuesday’s Reserve Bank of Australia (RBA) interest rate decision.

No real change in policy outlook is forecast at this juncture, although markets remain wary of the prospect of a more cautious message from policymakers.

Should the RBA lean towards greater dovishness, the GBP/AUD exchange rate is likely to extend its recent bullish run, with the odds of a 2018 interest rate hike diminishing further.

Laura Parsons

Laura has been working in the financial services sector since 2012 and provides currency news updates for a number of online and print publications. Over the years she has produced exchange rate analysis for publishers like French Property News, The Express, The Telegraph and Forbes.

Contact Laura Parsons