Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rates Slide despite RBA Rate Cut

Pound to Australian Dollar Exchange Rates Give Up Gains amid Brexit Jitters and UK Data

Despite the Reserve Bank of Australia (RBA) cutting Australian interest rates during its July policy decision this morning, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has largely given up the advance attempts seen yesterday. This is due partially to Pound (GBP) weakness.

Due to hopes for some kind of breakthrough in US-China trade relations last week, GBP/AUD plummeted throughout.

GBP/AUD shed around three cents, and closed the week relatively closely to four month interbank level lows of 1.80.

Despite a brief climb into the region of 1.81 yesterday, GBP/AUD slipped again this morning and trended closer to the week’s opening levels again at the time of writing.

The Pound’s weakness on broad no-deal Brexit fears weighed heavily, as did the latest UK ecostats which largely fell short of expectations.

Pound (GBP) Exchange Rates Under Deeper Pressure amid Shocking Construction Sector Contraction

Investors had already found the Pound (GBP) unappealing this week so far, as candidates to be Britain’s next Prime Minister continued to indicate that a no-deal Brexit was on the table.

Today, no-deal Brexit fears flared up again as the campaign chairman of leadership frontrunner Boris Johnson indicated that Johnson was more likely to aim for a no-deal Brexit if the EU refused to negotiate a different free trade deal.

This made it difficult for the Pound to hold the gains it had made yesterday, and today’s UK data only put further pressure on the British currency’s appeal.

On top of some weaker than expected house prices data from Nationwide, Markit’s June construction PMI shocked investors with a surprisingly deep contraction of 43.1. It marked the worst data for the print in just over a decade.

According to Michael Hewson from CMC Markets, the data was so bad that it could influence the Bank of England’s (BoE) policy outlook:

‘It would appear that the recent stalling of house prices is seeing a slowdown in this particular sector. New orders also fell sharply as the Brexit limbo puts companies off any imminent plans to make long term investments. It also calls into question the Bank of England thinking that a rate rise is more likely than a rate cut.’

Australian Dollar (AUD) Exchange Rates Edge Higher despite Reserve Bank of Australia (RBA) Rate Cut

Despite market demand for trade-correlated currencies at the beginning of the week on the latest US-China trade truce, the trade-correlated Australian Dollar (AUD) failed to benefit.

Instead, the ‘Aussie’ was sold from its best levels in a bout of profit taking after hitting highs on hopes for a trade truce at the end of last week.

However, demand for the Australian Dollar actually improved slightly this morning, after the Reserve Bank of Australia’s (RBA) latest interest rate cut.

An RBA interest rate cut would normally lead to a weaker Australian Dollar, but as the rate cut was largely expected, investors instead focused on the bank’s indication that further monetary policy easing was likely to be put on hold.

In a speech later in the morning, RBA Governor Philip Lowe called on Australia’s government to do more for Australia’s economy.

He indicated that the bank was prepared to ease policy further if necessary but signalled that rates would pause for the time being.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Investors Await Key Australian Data

For now, bets of further monetary policy easing from the Reserve Bank of Australia (RBA) have lightened.

This means Australian Dollar (AUD) investors are likely to anticipate upcoming data that could further influence Australia’s economic outlook.

Some key ecostats due in the coming days have the potential to boost the Australian Dollar outlook if they impress, starting with tomorrow’s Australian services PMI from June and trade balance results from May.

Australian retail sales stats, due on Thursday, could also influence the Australian Dollar.

The Pound’s (GBP) movement is likely to be driven by potential developments in Brexit or UK politics, but if there are no developments then tomorrow’s UK services PMI is the most likely to cause movement.

Pound to Australian Dollar (GBP/AUD) exchange rate investors will also be keeping an eye on US-China trade relations, and if they continue to improve then the trade-correlated Australian Dollar could strengthen and push GBP/AUD even lower.

Josh Jeffery

Contact Josh Jeffery