GBP/AUD Exchange Rate Eases Off Eight-Month Low as Australia’s Faces it First Recession in 29-Years

GBP/AUD Exchange Rate Rebounds as Australian GDP Contractions

The Pound to Australian Dollar (GBP/AUD) exchange rate is edging higher this morning as some gloomy Australian growth figures helps the pairing rebound from an eight-month low.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8253, up roughly 0.3% from this morning’s opening rate.

Australian Dollar (AUD) Trimmed as Australia Enters Recession

After skyrocketing through the first half of the week on the back of rising market optimism, the Australian Dollar (AUD) struck a bump in the road during Wednesday’s Asian trading session with the publication of Australia’s latest GDP figures.

According to data published by the Australian Bureau of Statistics (ABS), domestic growth contracted 0.3% in the first quarter of 2020, having previously expanded 0.5% at the end of 2019.

Given this contraction came before with business having only been closed for the last couple weeks of March, it seems safe to assume the slump in the second quarter will be significantly larger.

Josh Frydenberg, Treasurer of Australia, said:

‘Based on what we know from Treasury, we’re going to see a contraction in the June quarter which is going to be a lot more substantial than what we have seen in the March quarter.’

This also means that Australia has entered its first recession since 1991, something which is undoubtedly limiting the appeal of the ‘Aussie’ this morning.

Pound (GBP) Steady as UK Services Sector Remains in Contraction

Meanwhile, the Pound (GBP) is finding only modest support this morning after the UK’s finalised PMI figures confirmed the services sector continued to contract last month, abet at a far more modest pace than in April.

IHS Markit reported the UK’s services PMI printed at 29 in May, slightly above an initial estimate of 28 and having jumped from a record low of 13.4 in April as the gradual reopening of the UK economy bolstered economic activity.

However, this is still well below the 50 barrier which denotes the point between contraction and expansion, and as such Sterling was only able to make limited gains this morning.

GBP/AUD Exchange Rate Forecast: Brexit in the Driving Seat?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate is likely to come under pressure in the second half of this week’s session as we start to hear more about how the current round of Brexit talks are progressing.

Observers aren’t holding their breath that the final round of negotiations ahead of a key summit later in the month will deliver any breakthroughs, with the UK apparently reluctant to compromise on a number of key issues.

This will increase fears of a no-deal Brexit later in the year and is likely to limit any upside in Sterling going forward.

Meanwhile, the ‘Aussie’ could face some headwinds overnight on Wednesday with the publication of Australia’s retail sales figures.

Economists forecast April’s figures will reveal sales growth collapsed, plummeting from a record high of 8.5% to -17.9% as panic buying subsided and stores were forced to close as part of the Australia’s lockdown measures.

Matthew Andrews

Contact Matthew Andrews