Disappointment over UK Chancellor’s Economic Plan Weighs on Pound Australian Dollar (GBP/AUD) Exchange Rate
With markets disappointed by the details of Chancellor Rishi Sunak’s Winter Economic Plan the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate came under pressure.
Investors had hoped to see a greater degree of fiscal support unveiled in the announcement, with particular disappointment greeting the successor to the ending furlough scheme.
As the government will only subsidise 22% of pay for ‘viable’ jobs for six months fears of an impending wave of job losses picked up.
This left Pound Sterling (GBP) on a weaker footing against many of its rivals, with confidence in the outlook of the UK economy deteriorating further.
News that UK car production fell 44% in August added to the bearish picture, highlighting the extent of the pressure facing the economy in the months ahead.
Australian Dollar Downside Limited After Week of Losses
After a solid run of losses the Australian Dollar (AUD) managed to recover some ground ahead of the weekend, meanwhile.
With markets having already priced significant Covid-19 worries into the risk-sensitive Australian Dollar its potential for further declines proved temporarily limited.
AUD exchange rates may find fresh support this afternoon if August’s US durable goods orders index shows a sharp loss of momentum on the month as forecast.
Although signs still point towards orders growing on the month any slowdown in momentum could stoke anxiety over the economic outlook of the US.
While this would not bode well for the global economy any weakness of the US Dollar (USD) may still help to shore up AUD exchange rates in the near term.
Second Quarter UK GDP Report Set to Weigh on GBP Exchange Rates
A combination of Covid-19 anxiety and Brexit-based uncertainty look set to weigh on the GBP/AUD exchange rate for the foreseeable future.
As the UK economy appears at significant risk of experiencing a further loss of momentum in the final half of the year markets may see limited reason to favour the Pound.
The release of the second quarter’s finalised UK gross domestic product report could put further pressure on the Pound next week.
Confirmation that the economy saw a major slump in activity in the face of the Covid-19 crisis would give GBP exchange rates little cause for confidence.
As long as the possibility of a further tightening of the government’s social restrictions remains on the table this too could weigh on the Pound.
Resilient Chinese Manufacturing PMI to Offer Australian Dollar Boost
Support for the Australian Dollar, meanwhile, could improve on the back of September’s Chinese manufacturing PMI.
As the antipodean currency commonly functions as a proxy for market confidence in the Chinese economy a positive showing here could lift AUD exchange rates.
Stronger manufacturing sector growth would likely fuel increased demand for base metals, one of Australia’s key exports to China.
As long as the world’s second largest economy shows signs of recovering from the impact of Covid-19 this should help to shore up the Australian Dollar against the Pound.