Pound Australian Dollar (GBP/AUD) Exchange Rate Driven Lower as Aussie Retail Sales Surge

Rising Australian Retail Sales Weigh on Pound Australian Dollar (GBP/AUD) Exchange Rate

An unexpectedly sharp uptick in Australian retail sales saw the Pound to Australian Dollar (GBP/AUD) exchange rate shedding fresh ground ahead of the weekend.

While forecasts had pointed towards monthly sales growth of just 0.3% the data instead showed a 1.6% increase on the month in October, pointing towards a greater level of consumer confidence.

This encouraged the Australian Dollar (AUD) to return to a stronger footing against its rivals as worries over the outlook of the domestic economy temporarily diminished.

Support for AUD exchange rates also improved thanks to a general increase in market risk appetite, fuelled by the progress towards a rollout of trial Covid-19 vaccines.

Weakening UK Consumer Confidence Keeps up Pressure on GBP/AUD Exchange Rate

On the other hand, the mood towards Pound Sterling (GBP) remained rather muted in spite of a solid monthly increase in UK retail sales.

Although sales defied forecasts of a monthly stagnation to deliver a 1.2% uptick, potentially fuelled by a spate of pre-lockdown spending, this was not enough to shore up the GBP/AUD exchange rate.

With the November GfK consumer confidence index showing a fresh deterioration worries over the possibility of a fresh economic slump mounted.

Comments from Chancellor Rishi Sunak equally put pressure on the Pound, with investors unimpressed by the floated proposal to fresh public sector wages in 2021.

As consumer spending remains a key source of economic activity and support this prospect naturally limited the appeal of the Pound, adding to the bearishness of the GBP/AUD exchange rate.

Pound Support May Remain Muted if UK Services PMI Deteriorates

Fresh weakness could be in store for GBP exchange rates on Monday, meanwhile, with the release of November’s flash UK manufacturing and services PMIs.

Forecasts point towards both PMIs showing a loss of momentum on the month, suggesting that the service sector could even fall into a state of contraction.

As the service sector accounts for more than two thirds of the UK gross domestic product any slowdown here could weigh heavily on the Pound.

Lingering doubts over the extent of the second national lockdown and the threat of prolonged Brexit-based uncertainty could easily drag on growth in the final month of the year, increasing the odds of a negative fourth quarter growth rate.

Signs of Australian Economic Resilience to Limit AUD Exchange Rate Downside

As long as markets remain optimistic over the prospect of an end to the Covid-19 crisis this could help to keep the Australian Dollar on a stronger footing against its rivals.

November’s manufacturing and services PMIs may provoke some fresh volatility for AUD exchange rates in the near term, though.

Unless the reports can demonstrate sustained resilience within the Australian economy investors could find some incentive to sell out of the antipodean currency once again.

Any resurgence in doubts over the speed of any vaccine deployment may also limit the potential for further Australian Dollar gains, offering the GBP/AUD exchange rate some support at the start of the week.

Louisa Heath

Contact Louisa Heath