GBP/AUD Exchange Rate Strengthens as UK Business Activity Strikes Five-Year High

GBP/AUD Exchange Rate Buoyed by Upbeat PMIs

The Pound to Australian Dollar (GBP/AUD) exchange rate is on the rise this morning as investors welcome the UK’s latest PMI figures.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.7981, up roughly 0.3% from this morning’s opening rate.

Pound (GBP) Rallies on Robust PMI Figures

The Pound (GBP) is extending its advance against the Australian Dollar (AUD) this morning, in response to a robust UK PMI release.

Preliminary figures published by Markit, show the UK compositive PMI surged from 47.7 to 57.1 in July, sailing past expectations for a modest rise to 51.1.

This jump was mostly attributed to the UK’s service sector, which saw strong activity as the UK lockdown was eased further.

Most important however is that today’s figures reveal the UK’s private sector finally returned to growth this month, bolstering hopes that the third quarter will see the UK economy bounce back to life.

Chris Williamson, Chief Business Economist at IHS Markit, comments:

‘The UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown.

‘The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.’

Also buoying the Pound this morning is the UK’s latest retail sales release, with data published earlier this morning revealing a record 13.5% jump in sales growth last month as consumers flocked back to the high street with the reopening of most non-essential shops.

Australian Dollar (AUD) Slips in Bearish Trade

At the same time, the Australian Dollar (AUD), having already relinquished all of its gains against the Pound (GBP) for the week, continues to trend lower this morning in light of growing risk-aversion.

This comes in response to escalating tensions between the US and China, with Beijing responding to the closure of its consulate in Houston earlier this week by ordering the closure of the US consulate in Chengdu.

China’s foreign ministry said:

‘[The closure] is a legitimate and necessary response to the unreasonable actions taken by the United States.

‘The current situation between China and the United States is something China does not want to see, and the US bears all responsibility for that.’

AUD investors are particularly worried by the renewed tensions between the two powers, for fears it could threaten the ‘phase-one’ trade deal signed back in January.

GBP/AUD Exchange Rate Forecast: Slide in Australian Inflation to Drag on the ‘Aussie’?

Looking ahead to next week’s session, we may see the Pound to Australian Dollar (GBP/AUD) exchange rate extend its recovery with the publication of Australia’s consumer price index.

This is expected to show that Australia suffered some significant deflationary pressures in the second quarter. A sharp fall in inflation will add to the challenges facing the Reserve Bank of Australia (RBA) and is likely to reflect poorly on the ‘Aussie’.

AUD exchange rates will also remain highly sensitive to market risk appetite, potentially leading to even sharper losses if US-China tensions continue to flare.

Meanwhile, in the absence of any notable UK economic releases, the focus for GBP investors is likely to remain on Brexit.

This may limit any upside in Sterling unless next week’s talks result in some progress towards a trade deal.

Matthew Andrews

Contact Matthew Andrews