Pound to Australian Dollar Exchange Rate Weakens as UK Factory Growth at Seven-Year Low

GBP/AUD Exchange Rate Stumbles Following Gloomy UK Manufacturing PMI

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is trading on the back foot this morning, in response to the UK’s latest manufacturing PMI.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7969, sliding around 0.5% from this morning’s opening rate.

Gloomy PMI Data Casts the Pound (GBP) Lower

The Pound (GBP) finds itself on the back foot against the Australian Dollar (AUD) and the majority of its other peers this morning, following the publication of the UK’s latest manufacturing PMI.

According to data published by IHS Markit, growth in the UK’s factory sector continued to slump last month. The manufacturing index falling further into contraction territory as it slipped from 48 to 47.4, the worst pace of growth in seven-years.

The slowdown was attributed to the ongoing political uncertainty in the UK as well as concerns of a slowing global economy, both of which weighed on demand.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

‘The sector’s illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years. Investment continued to peter out and heightened concerns about the UK’s political situation and the strength of the global economy acted as a drag on activity.’

The slump in growth may also reignite fears that the UK economy could contract again in the third quarter, plunging the country into a technical recession.

Australian Dollar (AUD) Buoyed by Upbeat Chinese Data

The Australian Dollar (AUD) is trending higher at the start of this week’s session as markets cheered the release of China’s own manufacturing PMI.

Data published overnight on Sunday showed China’s factory sector narrowly avoided another contraction in August.

Australia has a close trade relationship with China so any positive Chinese data often reflects well on the ‘Aussie’.

GBP/AUD Forecast: UK Political Turmoil to Drive Volatility?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate may be met by considerable volatility this week as UK politics remain in the spotlight.

Markets are bracing for a chaotic session in Parliament, as MPs opposed to a no-deal Brexit have just one week to pass legislation which may be able to prevent such a scenario.

This could also see the government lose its razor thin majority as Boris Johnson has warned Conservative MP’s that any rebels voting against him will find themselves ousted from the party.

There is speculation that this will be used as a pretext to call a fresh general election, leading to even more political uncertainty volatility in Sterling.

Meanwhile the focus for AUD investors will be on tonight’s policy decision by the Reserve Bank of Australia (RBA).

While no policy changes are expected from the RBA this month, the Australian Dollar could tumble if the bank hints at the possibility of cutting rates again in October as global growth continues to slow.

Matthew Andrews

Contact Matthew Andrews