Latest Evidence of Chinese Slowdown Fuels Australian Dollar (AUD) Sell off
The latest signs of weakness from the Chinese economy helped to bolster the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
As October’s Chinese manufacturing PMI slipped deeper into contraction territory confidence in the outlook of the world’s second largest economy naturally faltered, fuelling a sense of market risk aversion.
This left the commodity-correlated Australian Dollar (AUD) under pressure this morning, even as September’s Australian building permits figure surprised to the upside.
Although building permits saw growth of 7.6% on the month, suggesting a greater level of confidence within the domestic construction sector, this was ultimately not enough to shore up AUD exchange rates.
As investors have already largely priced in the lower odds of the Reserve Bank of Australia (RBA) cutting interest rates in the coming months the potential for fresh Australian Dollar gains proved limited.
Sliding Consumer Confidence Fails to Drag on GBP/AUD Exchange Rate
Demand for Pound Sterling (GBP), meanwhile, picked up in spite of a fresh decline in the GfK consumer confidence index.
While the index dipped from -12 to -14, signalling a continued deterioration in UK sentiment, investors still found incentive to favour GBP exchange rates today.
With the UK no longer at risk of crashing out of the EU overnight the appeal of the Pound improved, even though the issue of Brexit remains unresolved.
As political tensions look set to flare in the coming weeks, though, the GBP/AUD exchange rate may struggle to hold onto this positive mood for long.
Pound Sterling Forecast to Falter on Continued UK Manufacturing Decline
Support for the GBP/AUD exchange rate may fade on the back of Friday’s UK manufacturing PMI report, however.
As forecasts point towards the manufacturing index extending its decline in October, adding to evidence of a weaker third quarter UK growth rate, the mood towards the Pound looks set to sour.
Although the manufacturing sector only accounts for a limited fraction of the UK’s economic activity another month of contraction could still weigh heavily on the Pound.
With the economy already appearing at risk of shedding further momentum in the third quarter any weakness from the PMI may encourage investors to sell out of the Pound once again.
Signs of Weaker Australian Inflation May Dent AUD Exchange Rates
AUD exchange rates could come under additional pressure, meanwhile, as markets expect to see a slowdown in the third quarter producer price index.
Evidence that inflationary pressure within the Australian economy is not as strong as policymakers would like is likely to put a significant dampener on the Australian Dollar.
Unless price pressures show signs of picking up, on either the quarter or the year, the antipodean currency looks vulnerable to further losses.
If the producer price index demonstrates resilience in the face of weaker global trade, though, this could knock the GBP/AUD exchange rate off its uptrend.