Pound Australian Dollar (GBP/AUD) Exchange Rate Dragged Down as Chinese Manufacturing Maintains Momentum

Chinese Manufacturing Resilience Weighs on Pound Australian Dollar (GBP/AUD) Exchange Rate

Another solid month of growth for the Chinese manufacturing PMI saw the Pound to Australian Dollar (GBP/AUD) exchange rate shedding ground this morning.

Although the PMI showed a slight slowdown on the month in December, dipping from 52.1 to 51.9, this was not enough to dampen the optimism of investors.

As the Australian Dollar (AUD) commonly functions as a market proxy for sentiment towards the Chinese economy this positive showing gave the antipodean currency a solid boost.

With the world’s second largest economy showing sustained signs of recovery from the disruption of the Covid-19 crisis the mood among investors remained decidedly bullish in the final trading session of 2020.

Latest Covid-19 Restrictions Encourage Pound Selling

Support for Pound Sterling (GBP), meanwhile, proved largely limited thanks to the latest tightening of UK social restrictions.

With much of the country effectively in lockdown once again, in all but name, confidence in the economic outlook took a fresh blow.

As the economy already looks set to experience another slowdown in the fourth quarter the prospect of this weakness persisting into 2021 left investors with little reason to favour the Pound over its rivals.

Lingering anxiety over the impact of the Brexit transition period’s end also put pressure on the GBP/AUD exchange rate, with the potential for additional economic disruption still heightened.

Australian Dollar Looks for Boost on Strong Manufacturing PMI

The mood towards the Australian Dollar could improve further next week with the release of December’s finalised Australian manufacturing PMI.

Confirmation that the manufacturing sector experienced a strong month of growth momentum could see the antipodean currency trending higher across the board at the start of the new trading year.

On the other hand, any negative revision to the PMI may leave AUD exchange rates vulnerable to selling pressure given their recent run of bullishness.

As long as the general sense of market risk appetite remains elevated, though, this could keep a floor under the risk-sensitive Australian Dollar.

Continued weakness in the US Dollar (USD) may also put pressure on the GBP/AUD exchange rate, with weak US data likely to encourage demand for the higher-yielding ‘Aussie’.

Weaker Mortgage Approvals Set to Weigh on GBP/AUD Exchange Rate

On the other hand, the Pound could fall further out of favour with investors on the back of November’s mortgage approvals and consumer credit figures.

Forecasts point towards a weakening in lending, suggesting a greater degree of caution among both consumers and banks.

As long as doubts over the strength of the UK’s economic outlook persist the potential for any significant GBP exchange rate rally appears limited.

Without upside surprises from the lending figures the Pound looks set to remain on the back foot against its rivals in the near term.

Louisa Heath

Contact Louisa Heath