Pound to Australian Dollar Exchange Rate Forecast: GBP/AUD Advance Could Continue on UK Services Report

Update: Pound to Australian Dollar Exchange Rate Recovers to Week’s Opening Levels Following UK Construction Report

The Pound to Australian Dollar (GBP/AUD) exchange rate spent most of Wednesday trade closer to the week’s opening levels.

GBP/AUD recovered from the morning’s monthly low after Britain’s April construction PMI beat expectations.

However, its gains were limited as the UK construction sector is not hugely influential.

Instead, Pound (GBP) investors are more likely to await Thursday’s key UK services PMI before making any more major moves on the British currency.

Pound to Australian Dollar Exchange Rate (GBP/AUD) Hits Monthly Low on UK Economic Concerns but Services PMI could Restore Balance following Sturdy Construction Figures

Following Tuesday’s UK manufacturing report, the Pound to Australian Dollar (GBP/AUD) exchange rate has slumped. This was despite broad weakness in the risky Australian Dollar (AUD).

Due to concerns about a slowing UK economy, GBP/AUD slipped from the interbank level of 1.82 to 1.81 last week. GBP/AUD briefly climbed on Monday, but by Wednesday morning the pair was trending near its worst levels since March.

Sterling (GBP) was sold on Tuesday, following the publication of Britain’s April manufacturing PMI which fell short of forecasts and indicated that Britain’s economy was not as resilient as hoped in Q2 2018.

However, GBP/AUD was able to recover slightly from its worst levels on Wednesday due to decent UK construction data and persistent weakness in ‘Aussie’ trade.

Pound (GBP) Exchange Rates Rebound from Worst Levels Thanks to UK Construction

While Britain’s April manufacturing PMI was highly disappointing and caused concerns that the economy was seeing slower growth in Q2 2018, Wednesday’s data offered an embattled Sterling (GBP) a little more support.

April’s UK construction PMI from Markit was forecast to only improve from a contraction of 47 to 50.5 – which would be just barely above stagnation.

However, the result came in at 52.5 – a better figure than most analysts expected. The bounce back was due to builders returning to work following Britain’s surprisingly bad weather in March.

Still, the Pound’s recovery was limited. Britain’s construction sector is not significant and analysts warned that there was still underlying weakness in the sector. According to Duncan Brock from the Chartered Institute of Procurement & Supply:

‘April’s data provides some relief after last month’s weather disruption, especially for the housing sector after a lacklustre few months. However, economic uncertainty and Brexit-related indecision continue to lurk beneath the surface as obstacles to the construction sector’s stability.’

Australian Dollar (AUD) Exchange Rates Lack Support amid US Dollar (USD) Strength

Broad demand for the US Dollar (USD) in recent weeks has left riskier currencies like the Australian Dollar (AUD) less appealing to investors.

Various factors are making the US Dollar more appealing, but it largely comes down to a rising expectation in markets that the Federal Reserve will be tightening US monetary policy considerably over the coming year.

Expectations for a stronger US economy, greater price pressures and tighter monetary policy have bolstered US Treasury 10-year bond yields.

Essentially, investors expect US interest rates to continue to rise and Australian interest rates are expected to remain frozen in the short to mid-term. Perceived policy divergence between the Federal Reserve and Reserve Bank of Australia (RBA) is largely driving Australian Dollar weakness.

Recent Australian data hasn’t been particularly impressive either though. AiG’s Australian manufacturing PMI slipped from 63.1 to 58.3 on Tuesday.

Pound to Australian Dollar (GBP/AUD) Forecast: Investors Anticipate Services Data

Thursday will see the publication of April’s services PMI results from both the UK and Australia, and these are likely to drive the day’s Pound to Australian Dollar (GBP/AUD) exchange rate movement.

Australia’s services PMI from AiG will be published during the Asian session, as well as March trade results and building permits, which may also prove influential.

However, the Australian Dollar (AUD) may remain pressured by US Dollar (USD) strength and in this case the Pound (GBP) may be more likely to drive GBP/AUD.

As Britain’s services sector makes up the majority of economic output, the April services PMI could be particularly influential if it surprises investors.

UK services are expected to have improved from 51.7 to 53.5 in April, but if the data beats expectations it could bolster hopes that Britain’s economy is becoming more resilient again.

This could even support Bank of England (BoE) interest rate hike bets and would help the Pound to Australian Dollar (GBP/AUD) exchange rate to advance towards the end of the week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard