Pound Australian Dollar (GBP/AUD) Slides on Mixed UK Economic Data
After a brief respite yesterday, the Pound Australian Dollar (GBP/AUD) exchange rate is tumbling again today following mixed UK data releases that are causing concern that the country’s economic recovery is running out of steam.
Poor UK retail sales data but better-than expected manufacturing and services PMIs have caused mixed movement in the Pound on Friday to leave GBP/AUD trading at 1.8396 at the time of writing.
Pound (GBP) Struggles on Mixed UK Data
The Pound (GBP) started today’s session sliding after retail sales figures for September surprised and contracted -0.2% instead of the 0.5% growth expected.
Against a backdrop of soaring inflation, supply chain problems, a looming energy crisis and rising Covid-19 cases, the data missing forecasts fuelled ongoing fears that the UK’s economic recovery could be running out of momentum.
Bethany Beckett, UK economist at Capital Economics, said of the UK economic recovery stalling:
“Overall, the data support our view that the economic recovery stalled in September. Our forecast is for GDP to return to its February 2020 peak in early 2022, but the risk is that the resurgence in COVID-19 cases and continued shortages means that GDP takes longer to reach that landmark.”
However, the Pound has pared its losses following the release of much better-than-expected PMI data.
The manufacturing PMI beat forecast of 55.8 and rose to a 57.7 reading, as well as revealing strong growth in factory activity driven by faster rates of new orders and employment growth, although the data highlighted longer supplier lead times and shortages of staff and materials.
At the same time, the October services PMI unexpectedly revealed robust expansion, jumping to 58 from 55.4 in September, pointing to the fastest expansion in the sector since July.
As markets respond to the data, the Pound may receive modest support through the end of this week’s session.
Australian Dollar (AUD) Buoyed by Improving Market Sentiment and PMI Data
The Australian Dollar (AUD) is surging this morning following upbeat economic data releases, lockdown easing in Victoria, and improving market risk appetite.
Better-than-expected PMI data has lifted AUD exchange rates higher, with private sector activity showing solid expansion.
The manufacturing PMI rose to a four-month high of 57.3, above expectations of 56.8, and the service sector unexpectedly returned to growth at 52, after three months of contracting while the country was under lockdown conditions.
Meanwhile, optimism over economic recovery continued to grow as Victoria, and Australia’s second-largest, Melbourne, exited lockdown conditions.
The risk-sensitive ‘Aussie’ has also benefitted from improving market mood following news that Chinese property giant Evergrande made an interest payment before a key deadline.
Shares in the Evergrande dived 12% yesterday after news of a deal to sell part of its property services collapsed.
Having now made the $83.5m payment and avoided an imminent formal default, shares in the company rebounded 6% overnight.
Pound Australian Dollar Forecast: GBP/AUD to Stem Losses?
The Pound Australian Dollar exchange rate looks set to remain sensitive to market mood and Bank of England (BoE) interest rate hike expectations going into next week, potentially helping Sterling limit its recent losses.
Rising Covid-19 cases in the UK could weigh on Sterling, with the threat of restrictions returning potentially denting the UK service sector and UK economic activity.
Ahead of Australian inflation data released on Wednesday, shifts in market risk appetite could stoke volatility in AUD exchange rates.
Although Evergrande has averted a technical default in the near future, larger debt repayments will be due soon and it appears unknown whether the Chinese property developer will be able to meet the next deadline.
As a proxy to China’s economy, the risk-sensitive Australian Dollar could come under pressure from the knock-on effect of Evergrande missing payments or dips in Chinese equity markets.