GBP/AUD Exchange Rate Soars as Trump Threatens Fresh Tariffs on China

GBP/AUD Exchange Rate Climbs as Risk Sentiment Weakens

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trading at its best levels since the start of the week after markets were spooked by the prospect of fresh US tariffs on China.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7846, up over a cent since the close of Thursday’s European session.

Fresh Trade Tensions Rock the Australian Dollar (AUD)

The Australian Dollar (AUD) fell sharply on Wednesday as risk-off mood prevails in markets amid renewed trade tensions between the US and China.

US President Donald Trump stoked tensions between the two countries overnight on Thursday as he made a series of tweets threatening to impose a 10% tariff on another $300bn worth of Chinese goods.

Trump’s tweets come in the wake of the latest round of bilateral trade talks in which little progress appears to have been made.

The focus will now be on how China may retaliate.

The rise in trade tensions have largely stifled demand for the ‘Aussie’ today, leaving the currency unable to accelerate despite data revealing domestic retail sales accelerated faster than expected in June.

Pound’s (GBP) Gains Capped by Weak UK Construction PMI

In the meantime, the Pound (GBP) is finding only limited support this morning following the publication of another gloomy UK construction PMI.

According to data published by IHS Markit, while the UK’s construction index crept up from 43.1 to 45.3, it still remains well below the 50 marker that separates growth from contraction.

Once again, the slump in growth appears to be driven by Brexit uncertainty as it continues to stifle demand for both commercial projects and new house building developments.

Tim Moore, Economics Associate Director at IHS Markit, said:

‘UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.’

GBP/AUD Forecast: Will a Cautious RBA Drive the ‘Aussie’ Lower?

Looking ahead to next week, the Pound to Australian Dollar (GBP/AUD) looks poised to accelerate through the first half of the session as the Reserve Bank of Australia (RBA) holds its latest policy meeting.

After cutting interest rates in June and July, the RBA is expected to keep its monetary policy on hold this month.

The focus will instead be on the bank’s forward guidance for the remainder of 2019, with the ‘Aussie’ likely to stumble if the RBA signals that a third rate cut may be on the cards.

Meanwhile, the Pound may also get off to a slow start next week, if growth in the UK’s dominant service sector is shown to have slowed again in July.

However the real focus for GBP investors next week will likely be on the UK’s GDP figures, with Sterling expected to fall sharply if economic growth contracted in the second quarter as some analysts fear.

Matthew Andrews

Contact Matthew Andrews