Sliding US Dollar Demand Causes Greater GBP/AUD Exchange Rate Losses as US Trade Advisor Kudlow Warns of Potential Harm to the US Economy
UPDATE 15:33 BST: The Pound (GBP) has continued to struggle against the Australian Dollar (AUD) this afternoon, falling by over 1% in the pairing.
This worsening of the GBP/AUD exchange rate puts the pairing at its lowest level since late January.
There has been no particular piece of economic data to influence the pairing; the shift has instead been caused by lower demand for the US Dollar increasing the Australian Dollar’s appeal.
In another USD-weakening incident, US economic advisor Larry Kudlow has admitted that the nation could be harmed by a trade war:
‘It might. I don’t deny that. You have to keep an eye on it.’
Poor UK Construction Sector Stats Bring Historic GBP/AUD Exchange Rate Losses
The Pound (GBP) has made considerable losses against the Australian Dollar (AUD) today, falling by -0.8% in the pairing.
This deterioration has dragged the GBP/AUD exchange rate to its lowest level since February 2018 and is partly down to May’s UK construction PMI.
This measure of sector activity printed at 52.5 points, the same as April’s reading. For context, any figure above 50 means that the sector is growing.
The data has not provoked wild optimism among Pound Sterling traders however, mainly because the construction sector is not perceived to be all that stable.
Duncan Brock of the Chartered Institute of Procurement and Supply (CIPS) has warned that:
‘It’s likely that the construction sector’s performance will be a slow and steady crawl through the second quarter, as the spectre of Brexit continues to dominate, and the double pincer movement of few orders and higher costs could see the sector stutter further.’
Strong Sales Data Pushes Australian Dollar to Pound (AUD/GBP) Exchange Rate to 4-Month High
On the other side of the pairing, the Australian Dollar (AUD) has been in high demand today, having risen sharply against the Pound (GBP) and most other peers.
The strong overall performance for the Australian currency was caused by supportive retail sales and company profit data.
In the former case, levels of retail sales in April rose by 0.4%, compared to the predicted 0.2% printing.
This rise was caused by a surge in spending in the hospitality industry. By contrast shopping centres and clothing retailers reported a slight dip in monthly sales.
The Australian Dollar has been further supported by news that gross company profits rose by 5.9% in Q1 2018, beating expectations for a lower rate of growth at 3%.
GBP/AUD Exchange Rate Volatility Forecast on UK Services Sector Data
This week, Pound/Australian Dollar (GBP/AUD) exchange rate movement may be caused by Tuesday’s UK services sector PMI, along with a GDP estimate on Friday.
The upcoming services PMI is more important than today’s construction reading, as the services sector contributes the most to UK economic growth.
If the services PMI rises then Pound Sterling (GBP) could rally against the Australian Dollar (AUD), making up for the disappointing construction stats.
On the other hand, a large drop in the services reading might extend GBP/AUD exchange rate losses over the week.
There may be a bright spot for GBP traders on Friday, if the National Institute for Economic and Social Research (NIESR) GDP estimate is revised up.
High-impact Australian economic data is also out this week in the form of Tuesday’s RBA meeting, Wednesday’s Q1 GDP stats and Thursday’s trade balance.
Reserve Bank of Australia (RBA) officials aren’t expected to adjust interest rates, but could still boost AUD with a positive economic forecast.
The GDP figures may provide greater support to the Australian Dollar, as they are tipped to show faster quarterly and annual growth.
Finally, there could be minor Australian Dollar losses on Thursday if April’s trade balance reading shows an as-expected reduction of the existing surplus.