GBP/AUD Exchange Rate Falls on UK Headwinds
The Pound Australian Dollar (GBP/AUD) exchange rate is falling so far this morning, despite weaker-than-expected Australian data and the election of a new Australian Prime Minister.
Political headwinds weigh heavily upon the Pound (GBP) alongside a worse-than-expected PMI release, while a risk-off mood exerts further downside.
At the time of writing, GBP/AUD is trading at A$1.7689, 0.2% below today’s opening levels.
Pound (GBP) Subdued as UK PMI Hits 16-Month Low
The Pound is trending down against its peers today as disappointing PMI results combine with political headwinds to exert pressure upon the currency.
Manufacturing activity in the UK fell to 54.6 in May compared with 55.8 last month, while service-sector activity dropped well below expectations at 51.8.
The data shows that manufacturing hit a 16-month low as output growth slowed and the latest increase in production volumes was the joint-weakest since October 2021. Analysts attribute this to supply chain disruption, the war in Ukraine and rising inflation.
Meanwhile, poor service-sector growth reflects a slowdown in client demand on account of economic and geopolitical uncertainty.
Elsewhere, political headwinds exacerbate GBP downside. Brexit remains in the headlines as it seems the UK may take unilateral action against the Northern Ireland protocol, despite warnings from a US delegation to Ireland.
Democratic congressman Dan Kildee told RTE Morning Ireland this week:
‘It’s important, and we stress this, that the (UK Government) negotiate and that they not take unilateral action.
The only way we can come to agreement, the only way we protect the incredible progress that’s represented with the Good Friday Agreement, is face-to-face negotiation.’
Australian Dollar (AUD) Depressed by Weak Data, Political Uncertainty
The Australian Dollar (AUD) is also subdued by PMI data this morning, as Australia’s manufacturing and service-sector indexes printed at 55.3 and 53.0, respectively.
As in the UK, supply shortages were cited as one reason for the reduced pace of manufacturing growth, alongside flooding and Covid-related labour issues. Similarly, poor weather conditions and higher interest rates were given as reasons for the slowdown in service-sector expansion.
Also weighing upon the ‘Aussie’ is a degree of uncertainty surrounding the election of the new Australian Prime Minister, Anthony Albanese.
Albanese was sworn in as Prime Minister on Monday morning and has since come under pressure to overhaul the Australian health system, amongst other things. The prospect of change sparks caution amongst AUD investors, already bearish amidst an overall risk-off mood.
The World Economic Forum (WEF) is discussing the worsening global food crisis today, as supply disruption caused by the war in Ukraine is driving up prices and creating shortages culminating in a risk of famine.
Achim Steiner, the administrator of the UN Development Programme (UNDP), says:
‘There is an acute crisis in food, fuel and finance. As of today there is no reason to believe this is a short term challenge.
We are in the middle of a series of unfolding crises and the world is not prepared for it.’
Pound Australian Dollar Exchange Rate Forecast: RBA Dynamics to Affect Trading?
Looking ahead, a speech from Reserve Bank of Australia (RBA) Assistant Governor Luci Ellis could affect the Pound Australian Dollar exchange rate tomorrow.
The RBA has struck a hawkish tone in recent comments – if Ellis continues that trend, AUD may enjoy tailwinds.
Meanwhile, Albanese’s new premiership may extend Australian Dollar volatility as the country anticipates significant policy changes regarding climate action, employment and childcare.