US-Sino Tensions Leaves the Pound Australian Dollar (GBP/AUD) Exchange Rate Flat

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted on Growing Trade Tensions

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained muted, leaving the pairing trading at around AU$1.8589.

The pairing was left flat on Thursday morning as traders became increasingly cautious. Weak economic indicators and growing US-China tensions weighed on sentiment.

The risk-sensitive Australian Dollar suffered losses, giving up close to 1% of its 10-week peak it hit during Tuesday’s session.

According to Rodrigo Catril, currency strategist from National Australia Bank:

‘The ‘Aussie’ has been tracking sentiment pretty closely, and today’s move lower in S&P futures is being reflected in the ‘Aussie’, which is a reflection of the broader dynamic.

‘On one side equity markets are pricing in positive news and looking through to the recovery (from coronavirus) and on the other side there is a pull down from the Chinese-US tensions.’

US-China tensions have soured in recent weeks as President Donald Trump attacked China’s handling of the coronavirus crisis.

Added to this, trade tensions between China and Australia have increased. Relations suffered as Australia took a leading role in the push for a global inquiry into the coronavirus pandemic.

Meanwhile, Thursday’s speech from Reserve Bank of Australia (RBA) Governor, Philip Lowe was nothing new for ‘Aussie’ traders.

Bank of England Negative Rate Weighs on Sterling (GBP)

Pound traders continued to worry weak inflation would drive the Bank of England (BoE) to send interest rates below zero.

Commenting on this, FX strategist at Singapore’s OCBC Bank, Terence Wu said:

‘The negative view we previously held for the kiwi on the back of a dovish Reserve Bank can now be extended to the Pound and the BOE.’

Sterling was also left under pressure after PMI data showed the rapid downturn in the private sector continued in May.

However, Markit’s data revealed the speed of the downturn eased compared to April. The country’s PMI composite increased from 13.8 to a two-month high of 28.9.

Commenting on this morning’s flash PMI data release, Group Director at CIPS, Duncan Brock said:

‘The minor easing in the downturn compared to last month’s figures only serves to highlight the depth of the fall in April’s output and does not signal that the pathway is clear for an improvement in the manufacturing and services sectors.

‘This month saw another steep fall in overall business activity, surpassing for the third time the rates of decline seen during the global financial crisis in 2009. No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.

‘As the sectors prepare for a further easing in restrictions and becoming covid-ready for staff to return, the danger on the horizon is a second wave of infections threatening the health of the nation and dampening consumer confidence still further.’

Pound Australian Dollar Outlook: US-China Tensions and Retail Sales in Focus

Looking ahead to Friday, the Pound (GBP) could slump against the Australian Dollar following the release of April’s retail sales data.

Sterling will slide if retail sales plummet as British consumers were left increasingly cautious due to the coronavirus pandemic.

Meanwhile, if tensions between the US and China continue to simmer, risk sentiment will slump further.

If China responds to President Trump’s accusations, the ‘Aussie’ will slide. This will leave the Pound Australian Dollar (GBP/AUD) exchange rate flat.

Millie Empson

Contact Millie Empson