Pound Australian Dollar (GBP/AUD) Exchange Rate Fluctuates as Markets Digest Data
(Updated 15:30, 5/10/21) The Pound Australian Dollar (GBP/AUD) exchange rate has fluctuated in a narrow range today, as markets digest the UK’s mixed services PMI.
The finalised PMI printed higher than the preliminary estimate and increased for this first time in four months. However, there were signs that the supply chain crisis stifled growth, while businesses also began to pass higher costs on to customers.
Mixed sentiment around the Australian Dollar (AUD) also added to the volatility. The ‘Aussie’ has continued catching bids today following last night’s positive data reports, however a downbeat market mood is offsetting the upside and causing AUD to waver.
In addition, some of Australia’s key commodity exports – including coal and iron ore – have increased in price today, which may also be supporting the ‘Aussie’ despite the risk-off market mood.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Regains Ground following Mixed PMI
The Pound Australian Dollar (GBP/AUD) exchange rate is rallying today after the UK’s services PMI beat forecasts but came with warnings.
Meanwhile, the ‘Aussie’ was initially supported by tailwinds from some positive overnight data releases. However, a shift in risk sentiment is now weighing on the risk-sensitive currency.
Pound (GBP) Firms despite Service Sector Concerns
The Pound (GBP) was initially subdued this morning as some mixed data from the UK left Sterling without a clear direction.
The UK’s finalised IHS Markit services PMI printed higher than the preliminary estimate. The reading increased from 55 in August to 55.4 in September, though economists had expected it to drop to 54.6.
The results reveal the first increase in the pace of expansion in services since May, indicating that the UK service sector is continuing to recover.
However, the report came with some caveats. Tim Moore, Economics Director at IHS Markit, said:
‘The supply chain crisis put a considerable brake on recovery in the UK service sector during September. Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities. Consequently, new orders expanded at the slowest pace since the end of the winter lockdown, while backlogs of work accumulated as service providers struggled to find candidates to fill vacancies.’
The report also highlighted a ‘spike in operating expenses’. However, the PMI doesn’t ‘fully reflect the inflationary impact of the UK fuel crisis and surging energy prices at the end of the month’, meaning expenses are likely to increase further.
As pressures mount, service providers are now passing costs on to their customers. The PMI showed that prices charged by service-sector firms rose at the fastest pace since records began 25 years ago.
Following the mixed data, Sterling initially dipped against a strengthening Australian Dollar (AUD). However, a shift in market mood has given GBP room to recover.
Australian Dollar (AUD) Dips as Market Sentiment Sours
Earlier this morning, the ‘Aussie’ enjoyed a delayed tailwind from some better-than-expected data releases overnight.
First off, Australia’s services PMI beat forecasts, printing at 45.5 versus the expected 44.9.
Australia’s balance of trade also exceeded expectations. The country’s surplus widened from AU$12.65bn to a fresh record high of AU$15.077bn, versus forecasts of AU$10.3.
Another factor that supported AUD today was the Reserve Bank of Australia’s (RBA) policy decision last night. While the RBA kept interest rates and bond-buying unchanged, it struck a cautiously optimistic tone in its subsequent announcement.
The bank believes Covid-related economic setbacks will be temporary and expects the economy to bounce back rapidly as restrictions are lifted and vaccination rates rise.
However, a number of factors have dented the market’s appetite for risk, thereby weighing on the riskier ‘Aussie’.
Republicans and Democrats in the US Congress are no closer to agreeing on how to address the debt limit. With the clock ticking and the default deadline inching closer, investors are growing more anxious.
In addition, there are signs of increased stress in the Chinese property sector. Property developer Fantasia Holdings failed to make a bond payment today (Tuesday), just days after property giant Evergrande missed its second payment deadline in as many weeks.
Ratings agencies have now downgraded Fantasia Holdings, and another company called Sinic Holdings, as risks of a default increase.
GBP/AUD Exchange Rate Forecast: Will Risk Appetite Continue to Support Sterling?
If the market mood remains downbeat, GBP/AUD could continue to climb today. Investors will be keeping a close eye on the situations unfolding in the US and China.
Meanwhile, the UK’s supply chain crisis could also influence the currency pair. If any new issues arise, the Pound could find itself under pressure.