Pound Australian Dollar Exchange Rate Keeps Falling as Risk-On Sentiment Prevails
(Updated 15:20, 2/8/21) The Pound Australian Dollar (GBP/AUD) exchange rate has continued to fall this afternoon, as the risk-sensitive ‘Aussie’ benefits from a bullish market mood.
Both AUD investors and markets seem to have shrugged off the disappointing data from China this morning, with the Australian Dollar climbing from £0.528 to £0.530. The FTSE 100 is on track to rise by 0.7% today, while the Dow Jones has just hit a record high.
The GBP/AUD pair seems to have recovered from today’s lows of AU$1.885 and is trading at about AU$1.889 at the time of writing.
Sterling may have been bolstered by the National Institute of Economic and Social Research’s forecast that the UK economy will grow by 6.8% this year, upwardly revised by 1.1 percentage points since May.
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Pound Australian Dollar Exchange Rate Slips as Risk Appetite Improves
The Pound Australian Dollar (GBP/AUD) exchange rate is trending downwards today, as an improving market mood supports the upside in AUD.
Meanwhile, the UK’s as-expected PMI data did little to influence GBP exchange rates.
Pound (GBP) Muted as PMI Fails to Impress
The Pound (GBP) is somewhat subdued today, as the UK’s finalised manufacturing PMI failed to impress investors.
UK factory activity dropped from 63.9 to 60.4 in July, with the finalised figure matching the preliminary estimate and therefore failing to prompt much movement.
While the figure reveals the fourteenth successive month of factory output expansion, rising prices, strained supply chains and staff shortages undermined further growth.
In the PMI report, IHS Markit said:
‘Scarcities, shortages and price rises remained prominent challenges faced by UK manufacturers during July.
‘Raw material, staff and skill shortages were all major factors stymieing output growth and contributing to a further marked increase in input purchasing.’
Difficulties in adjusting to post-Brexit arrangements also hampered factory growth, with some firms struggling to manage supply and distribution channels between the UK and EU.
Despite these concerns and apathy among GBP investors, the Pound Australian Dollar exchange rate is still trading close to its highest levels in over a year.
Last week Sterling strengthened as UK Covid cases fell and economic optimism improved, and this upbeat outlook on the UK’s path out of the pandemic seemingly continues to support the Pound today.
Australian Dollar (AUD) Upside Undermined by Lockdowns
The Australian Dollar (AUD), meanwhile, is trending slightly higher this morning as risk appetite recovers.
The ‘Aussie’ has also potentially been supported by its own Markit manufacturing PMI, which was revised marginally upwards from 56.8 to 56.9.
However, the PMI still reveals the slowest growth in factory output in four months. Manufacturing activity was disrupted by the recent coronavirus outbreaks in Australia and continued supply constraints.
Additionally, a snap three-day lockdown began in Brisbane on the weekend due to Delta variant cases, and the Australian army is enforcing the extended lockdown in Sydney.
The economic impact of these lockdowns has weighed on the Australian Dollar in weeks past and is likely limiting the upside of the ‘Aussie’ this morning.
Pound Australian Dollar Exchange Rate Forecast: AUD Challenges Ahead?
With Australia still battling recent outbreaks of the virus, and only 15.4% of the population fully vaccinated (at the time of writing), the Australian Dollar might struggle to sustain the upside as the day goes on.
Additionally, China’s manufacturing growth slowed to its lowest reading since the pandemic hit the global economy in April 2020. As China is Australia’s biggest trading partner, this could also dent the ‘Aussie’.
China’s factory output slowdown could also dampen risk appetite, which would act as a further headwind for AUD.
Meanwhile, the Pound could find itself driven by domestic coronavirus news for the rest of the day as no more data is due out of the UK.