Update: Pound Sterling to Australian Dollar Exchange Rate Falls to Three-Month-Low Following UK Data
While Britain’s second Q1 Gross Domestic Product (GDP) projections were not surprising, they were concerning enough for investors to sell the Pound to Australian Dollar (GBP/AUD) exchange rate.
During Friday’s session, GBP/AUD saw further losses and even briefly touched on an interbank low of 1.75 for the first time since January.
Investors were disappointed with Britain’s projected Q1 growth rate of just 0.1%, as hopes faded that the projection could be revised higher.
On top of growth concerns, UK business investment projections fell short of forecasts for Q1 too. Quarterly business investment is now projected to have contracted at -0.2%.
Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Tumbles to Four-Month-Low on UK Growth Slowdown
Despite a general lack of support for the Australian Dollar (AUD) over the past week, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been slumping this week due to Britain’s underwhelming economic outlook.
After opening the week at the interbank level of 1.79, GBP/AUD slumped by over two cents. After fluctuating near the level of 1.77 for most of the week, GBP/AUD hit a four-month low of 1.76 on Friday morning.
The primary reason for GBP/AUD losses this week has been due to disappointing UK ecostats, adding to Britain’s economic uncertainties alongside persistent Brexit worries.
Friday rounded off the week with Britain’s latest growth projections, which continued to signal that the economy slowed significantly in Q1.
The Australian Dollar has largely benefitted from weakness in its rivals. It was able to take advantage of Pound weakness thanks to a US Dollar (USD) selloff, which made riskier trade-correlated currencies like the ‘Aussie’ more appealing.
Pound (GBP) Exchange Rates See Late-Week Losses as UK Economic Outlook Remains Weak
While Britain’s second Q1 Gross Domestic Product (GDP) projections were not surprising, investors hoping for some signs of improvement were disappointed, and this caused Sterling (GBP) to experience some late-week losses.
Britain’s quarter-on-quarter growth rate is still projected to have fallen from 0.4% to 0.1%, with the yearly growth rate to have slowed from 1.4% to 1.2%.
The Office for National Statistics (ONS), which compiles the report, noted that not all the slowdown in Q1 can be attributed to bad weather, despite claims to the contrary from other analysts.
The report stated:
‘While the bad weather had some impact on the economy, particularly in construction and some areas of retail, its overall effect was limited, with partially offsetting impacts in energy supply and online sales.’
The latest growth stats also indicated that once growth was adjusted for population changes, it actually shrank slightly in the first quarter, on a per-capita basis.
It followed reports earlier in the week confirming that UK inflation was slower than expected again in April, further dampening Britain’s economic outlook.
Australian Dollar (AUD) Exchange Rates Benefit from Weakness in Rivals
The Australian Dollar (AUD) has been surprisingly resilient this week, despite fresh uncertainties about the likelihood of an optimistic outcome in US-China trade negotiations.
Australian Dollar trade has been benefitting from global factors and weakness in other currencies, rather than domestic drivers. Recent Australian data has been low influence or underwhelming.
Broad weakness in the US Dollar (USD) throughout the week has made risky currencies like the Australian Dollar more appealing. AUD trade has also gained as investors buy the currency higher from its recent lows.
The latest developments keeping the US Dollar weak and giving the ‘Aussie’ room to advance include news that US President Trump has cancelled a summit between the US and North Korea.
Pound to Australian Dollar (GBP/AUD) Forecast: ‘Aussie’ Demand Could Strengthen
Pound to Australian Dollar (GBP/AUD) exchange rate investors are unlikely to find many new reasons to buy the Pound (GBP) next week, so the Australian Dollar (AUD) may drive movement in the pair instead.
Towards the end of the week, some notable UK and Australian ecostats will be published.
For Pound investors, the biggest datasets will be Thursday’s UK consumer confidence data and Friday’s UK manufacturing PMI for May.
Unless these stats come in well above expectations, the Pound could continue to be weighed by UK economic and Brexit uncertainties.
Australia’s upcoming ecostats include private sector credit and private capital expenditure on Thursday, followed by manufacturing PMI data and retail sales on Friday.
Most vitally though, as the Australian Dollar has been driven by global factors lately a few strong domestic figures could make investors even more willing to buy into the ‘Aussie’.
Unless risk-sentiment worsens and drags the ‘Aussie’ lower next week, the Pound to Australian Dollar (GBP/AUD) exchange rate could be in for another week of losses.