Pound to Australian Dollar Exchange Rate Muted as UK Construction Slows

GBP/AUD Exchange Rate Flat Following Gloomy Construction PMI

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is currently trading in a narrow range this morning after the UK’s latest construction index came in below expectations.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8297, virtually unchanged from this morning’s opening rate.

Pound (GBP) Subdued as UK Construction Sector Shrinks

The Pound (GBP) is struggling to find momentum this morning, as the UK’s latest construction PMI made for grim reading.

According to data published by IHS Markit the construction sector suffered its second largest contraction in over a decade last month, with the construction index slumping from 45 to just 43.3.

The report attributed the decline to weak demand, with clients hesitant to invest in the UK given heightened uncertainty on Brexit and an increasingly gloomy economic outlook.

This follows a weaker than expected reading in yesterday’s manufacturing PMI, threating a possible contraction UK growth in September if tomorrow’s Services index doesn’t perform strongly.

Joe Hayes, Economist at IHS Markit, comments:

‘The performance of the UK economy once again hinges on the service sector showing a marked degree of resilience to offset the weakness seen in construction and manufacturing.’

RBA Rate Speculation Keeps a Lid on the Australian Dollar (AUD)

At the same time, the Australian Dollar (AUD) is struggling to find momentum this morning as the Reserve Bank of Australia’s (RBA) policy decision on Tuesday continues to limit the appeal of the antipodean currency.

As expected the RBA voted to cut rates again this month, lowering interest rates by another 25 basis points to just 0.75%, a new record low.

However it appears to be the RBA’s dovish outlook which appears to have put the most pressure on AUD exchange rates, with the bank hinting that further cuts may be possible if economic conditions continue to deteriorate.

This has not been helped by recent manufacturing data from the US and Europe, where a contraction in factory growth has renewed concerns over slowing global growth.

GBP/AUD Forecast: Boris Johnson’s Brexit Proposals to Infuse Volatility in Sterling?

Still to come today is Boris Johnson’s speech in front of the Conservative party conference later this morning.

The PM’s speech is expected to touch on his ‘final’ Brexit offer to the EU and as a result could inject some fresh volatility into the Pound to Australian Dollar (GBP/AUD) exchange rate.

Johnson has said there are ground for optimism on a Brexit deal and that the proposals are aimed at reaching a ‘fair and reasonable’ Brexit compromise with the EU.

Subsequent movement in Sterling will likely be driven by the EU’s response to the proposals, with GBP exchange rates potentially falling if officials remain sceptical.

For AUD investors the focus in the latter half of the week is likely to be on the publication of Australia’s trade balance figures later tonight.

Economists forecast these will show the country’s trade surplus narrowed again in August, falling from AU$7.26bn to AU$6bn.

However given this would still be one of Australia’s largest trade surplus on record, the data may still lend some support to the Australian Dollar.

Matthew Andrews

Contact Matthew Andrews