Pound to Australian Dollar (GBP/AUD) Exchange Rate under Pressure on USMCA Trade Deal News
The Pound (GBP) came under fresh pressure from the Australian Dollar (AUD) at the open of trade today due to lowered risk sentiment following a trade deal announcement – although it has since recovered on some positive UK data.
The main driver for Australian Dollar strength has come in the form of news that the US, Canada and Mexico have provisionally agreed on a new three-way trade deal.
Provisionally being called USMCA (an acronym of United States Mexico CAnada) the new trade deal would likely replace NAFTA as the vehicle for free trade in North America.
Speaking about the new trade deal US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland issued a joint statement, saying that the agreement with Mexico would mean ‘freer markets, fairer trade and robust economic growth.’
A finalised pan-North American trade agreement would likely do much to assuage trade war fears, giving a lift to traditionally risk-sensitive currencies such as AUD.
GBP/AUD Exchange Rate Weakens Last Week on Uptick in Copper Prices
By the end of last week’s session GBP/AUD had slumped, falling over a cent as rising commodity prices, particularly copper, helped to bolster demand for the Australian currency.
Today, however, AUD investors are looking ahead to the Reserve Bank of Australia’s (RBA) latest rate decision, which will take place tonight.
Any movement in the ‘Aussie’ over the next 24 hours is likely to be driven by the tone of the bank’s policy statement.
Pound Fights Back on Better-than-Expected Manufacturing Figures
This morning saw the Pound fight back after last week’s slump, with Sterling trading up around 0.4% in reaction to the latest round of purchasing managers’ index (PMI) data.
The UK manufacturing PMI beat expectations, printing at a punchy 53.8 against expectations of 52.5, bolstering confidence in the British economy and boosting demand for Sterling.
Economists favour PMI data as it provides a snapshot of the economic situation in the private sector as opposed to other ‘backward looking’ datasets which are often subject to revision, so the latest manufacturing PMI comes as a welcome surprise for Pound investors.
There was also some upbeat news today in the form of mortgage approvals, which rose from 65k to 66k in August, beating expectations that the figure would have dropped to 64.5k.
GBP/AUD Outlook: Conservative Party Conference leaves GBP Vulnerable to Brexit Jitters
We could see a resurgence in Brexit uncertainty this week if members of the UK’s ruling Conservative Party openly disagree on the issue of Brexit at the party’s annual conference in Birmingham.
Meanwhile, there is not expected to be any change in interest rates when the RBA meets later on. Currently rates are set at 1.5% and a consensus of economist foresee no change to this.
Later in the week we have the UK services PMI on Wednesday, which is currently forecast to disappoint Sterling investors.
Then, on Thursday, Australia latest trade balance will be published, with the latest indications being that August’s figure will show an improvement on the previous month.
On the same day the AIG construction index for September is set to show a dip, potentially bolstering the GBP/AUD exchange rate.