A disappointing Chinese manufacturing PMI helped to lift the Pound to Australian Dollar exchange rate, adding to the wider deterioration in market confidence.
Last Week: Declining Business Confidence Weighs on Australian Dollar
A sharper-than-expected slump in the NAB business confidence index for December left the Australian Dollar on the back foot last week.
With signs pointing towards an increasing sense of anxiety within the Australian economy AUD exchange rates found themselves generally lacking in support, especially in the face of renewed market risk aversion.
While the fourth quarter inflation rate bettered forecasts this was not enough to keep the Australian Dollar from shedding further ground against the Pound.
As UK car production saw a smaller contraction on the year than forecast this also helped to shore up the Pound to Australian Dollar exchange rate.
Three Things to Watch out for This Week
1. Reserve Bank of Australia Rate Decision
Although markets do not expect to see any change in policy from the Reserve Bank of Australia’s (RBA) meeting on Tuesday this could provoke fresh Australian Dollar volatility.
Any signs that the central bank has adopted a more cautious view of the economic outlook could drag on AUD exchange rates, fuelling bets on the prospect of future monetary loosening measures.
2. Australia Balance of Trade
Confidence in the resilience of the Australian economy could weaken further on Thursday with the release of December’s trade balance report.
If the headline trade surplus narrows on the month as forecast this would give investors fresh incentive to sell out of the antipodean currency, given that global trade conditions look set to remain weak in the months to come.
3. Bank of England Rate Decision
Support for the Pound could falter in the days ahead as anticipation builds for the latest Bank of England (BoE) policy announcement.
While policymakers look set to keep interest rates unchanged once again any evidence of increased dovishness within the central bank could weigh heavily on the GBP/AUD exchange rate.
GBP/AUD Outlook
The outcome of the latest RBA and BoE policy meetings look set to drive fresh volatility for the Pound Australian Dollar exchange rate this week.