Drop in UK Business Optimism Unable to Dent Pound Australian Dollar Exchange Rate
A sharper-than-expected drop in the CBI business optimism index was not enough to keep the Pound to Australian Dollar (GBP/AUD) exchange rate from trending higher.
Although the index plunged from 0 to -22 for the first quarter, offering fresh evidence of the negative impact of the latest lockdown, this failed to weigh on Pound Sterling (GBP).
While the odds of a negative first quarter gross domestic product still appear on the rise the Pound instead took encouragement from the prospect of greater US fiscal stimulus measures in the pipeline.
With the global economic outlook appearing to improve GBP exchange rates found fresh traction, even as domestic data signals proved less encouraging in nature.
Improved Unemployment Rate Fails to Shore up AUD Exchange Rates
On the other hand, the Australian Dollar (AUD) struggled to find support even as December’s Australian unemployment rate proved better than forecast.
Even though the headline unemployment rate dipped from 6.8% to 6.6% on the month this failed to encourage any particular confidence among investors.
As unemployment still remains elevated by historic standards worries over the outlook of the Australian labour market lingered, especially as the pace of job creation appeared to slow.
While markets maintained a risk-positive outlook in the wake of Joe Biden’s inauguration as US president this was not enough to insulate the Australian Dollar, leaving the GBP/AUD exchange rate to trend higher.
Australian Dollar Vulnerable to Retail Sales Contraction
The mood towards the Australian Dollar could sour further overnight if the latest retail sales figures weaken as anticipated.
With sales expected to show a -2.5% monthly contraction in December, pointing towards a continued Covid-19 impact, AUD exchange rates look vulnerable to another bout of selling pressure.
Evidence that consumers took a more cautious outlook in the final month of 2020 could give investors fresh incentive to sell out of the antipodean currency.
On the other hand, signs of resilience in January’s manufacturing and services PMIs may help to limit the risk of further Australian Dollar losses in the near term.
Negative UK Services PMI Forecast to Weigh on Pound Demand
Worries over the health of the UK economy may pick up once again on Friday, meanwhile, with the release of the latest UK PMIs.
Particular focus looks set to fall on the services PMI, given that the sector remains the primary growth engine of the economy.
If the PMI remains trapped in contraction territory, weakening from 49.4 to 45 as forecast, this would raise the risk of a negative first quarter growth rate.
As long as signs continue to point towards the UK economy shedding further momentum in the first few months of the year this could limit the potential for any further GBP/AUD exchange rate gains.