GBP/AUD Exchange Rate Buoyed Amidst Risk-Off Trade
The Pound to Australian Dollar (GBP/AUD) exchange rate is trending higher this morning as investors grow skittish as a US air strike stokes tensions in the Middle East.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8842, slightly up from this morning’s opening rate.
Australian Dollar (AUD) Weakens as US Air Strike Spooks Markets
The Australian Dollar (AUD) is on the back foot against the Pound (GBP) and the majority of its other peers this morning as market risk appetite has been knocked by rising tensions in the Middle East.
This comes in the wake of a US air strike in Baghdad, in which a top Iranian general was killed.
JUST IN: U.S. forces killed Iranian Quds Force commander Qassem Soleimani; the strike was aimed at deterring future Iranian attack plans – Pentagon pic.twitter.com/iXxKzmdyRQ
— Reuters (@Reuters) January 3, 2020
The White House announced that the strike on General Qasem Soleimani was ordered by US President Donald Trump, stoking fears of a sharp escalation of tensions between Washington and Tehran.
Iran’s Supreme Leader Ayatollah Ali Khamenei was quick to condemn the attack and has threatened that ‘severe revenge awaits the criminals’ behind the attack as he announced three days of national mourning.
The air strike comes as a major shock to markets and has prompted investors to shy away from risk-sensitive currencies like the ‘Aussie’ this morning.
Olivier Jakob, managing director of Petromatrix, comments:
‘The killing of Soleimani calls for a serious increase of the geopolitical risk premium.
‘This was supposed to be a holiday week for many traders. Many will be cutting the holidays short and call-in for an emergency risk meeting.’
Pound (GBP) Undermined by Disappointing Construction PMI
Meanwhile, in spite of the Australian Dollar’s (AUD) weakness, the Pound (GBP) has only been able to find modest gains this morning, in the wake of the UK’s latest construction PMI.
According to data published by IHS Markit, growth in the UK’s construction deteriorated in December, with the index slumping from 45.3 to 44.4 and missing expectations it would accelerate to 45.9.
🇬🇧 UK Construction PMI ⬇️ to 44.4 in December (Nov: 45.3) signalling another sharp reduction in construction output, amid the quickest fall in civil engineering activity since March 2009. More here: https://t.co/26DAHtlDRI pic.twitter.com/inO6LnXS60
— IHS Markit PMI™ (@IHSMarkitPMI) January 3, 2020
This was the sector’s ninth consecutive contraction in growth, with Brexit and election uncertainty both contributing to a fall in demand.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:
‘The construction sector crumbled again in December under the weight of Brexit and political uncertainty as pipelines of work continued to worsen and new orders dropped for the ninth consecutive month.’
GBP/AUD Forecast: Rising Brexit Uncertainty to Weigh on Sterling Next Week?
Looking ahead to next week’s session, in the absence of any notable UK economic data, movement in the Pound to Australian Dollar (GBP/AUD) exchange rate looks set to be dictated by Brexit sentiment.
This could leave Sterling on the back foot throughout the session as GBP investors grow increasingly sceptical that the UK will be able to successful negotiate a new trade agreement with the EU by the end of 2020.
Meanwhile, AUD investors are likely to remain sensitive to developments in the Middle East, with any further escalation in tensions likely to pressure the risk-sensitive ‘Aussie’.
However the Australian Dollar may also find some support from some upbeat domestic data, if the latest trade balance or retail sales figures show some improvement.