Rising Australian Unemployment Fuels Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Gains
As the Australian unemployment rate saw a sharper increase than anticipated this helped to spur the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate higher.
While investors had expected to see the unemployment rate rise the uptick from 5.1% to 5.3% still left the Australian Dollar (AUD) on the back foot.
Given that the relative slack in the labour market has been one of the Reserve Bank of Australia’s (RBA) key focuses this disappointing showing could give policymakers cause for anxiety.
Even though the increase was partly driven by a stronger participation rate AUD exchange rates were left to trend sharply lower in the wake of the data, dragged lower by fears of potential monetary loosening.
Pound Demand Recovers as UK Retail Sales Surge
A solid rebound in January’s UK retail sales figures offered Pound Sterling (GBP) an additional leg up against its rivals, meanwhile.
As sales excluding auto fuel leapt 1.6% on the month this encouraged hopes that consumer sentiment saw a solid improvement at the start of the year.
This latest sign that consumers were quick to shrug off the uncertainty of the December general election gave markets renewed cause for optimism in the outlook of the UK economy.
Provided that consumer spending remains elevated throughout the first quarter this could help to offset any renewed weakness in the manufacturing sector, limiting the risk of a weak gross domestic product reading.
GBP/AUD Exchange Rate Vulnerable to Underwhelming UK PMIs
Even so, the GBP/AUD exchange rate may struggle to hold onto its gains ahead of the weekend thanks to the release of February’s UK manufacturing and services PMIs.
With the manufacturing sector expected to slip back into a state of contraction the mood towards the Pound could sour once again.
On the other hand, forecasts point to another solid month of growth for the service sector, something which would limit the potential for GBP exchange rate losses.
Fresh evidence of resilience within the dominant service sector would offer investors fresh cause for confidence in the UK economy, even in the face of the latest resurgence in Brexit-based anxiety.
Fears of Economic Slowdown May Drag on Australian Dollar
With the Australian manufacturing PMI also looking set to sink deeper into contraction territory, however, support for the Australian Dollar could remain muted in the days ahead.
While anxiety over the Covid-19 outbreak has shown signs of easing worries over the health of the global economy persist, with the first quarter looking at risk of experiencing a global slowdown.
Signs that weaker global growth has already impacted the Australian economy could drive AUD exchange rates into a fresh slump.
Although the RBA has previously shown signs of unwillingness to cut interest rates further any significant deterioration in the Australian economy could boost the odds of a 2020 cut.
Stronger US data could also help to drive the GBP/AUD exchange rate higher on Friday as the appeal of the antipodean currency weakens.