Pound Australian Dollar (GBP/AUD) Slumps on Improving Market Mood
The Pound Australian Dollar (GBP/AUD) exchange rate is slipping as hopes of economic stimulus from China improved risk appetite.
At time of writing, the GBP/AUD exchange rate is around $1.9807, a 0.44% drop from the morning’s opening levels.
Australian Dollar (AUD) Boosted by Improving Market Mood
The Australian Dollar (AUD) is finding renewed support this morning as risk appetite improves. News out of China buoyed the market as hopes of economic stimulus could kickstart the stuttering Chinese economy.
However, preventing further gains is the fact that the economic situation in China remains dire, and could keep a firm lid on the China-Proxy ‘Aussie’. Elsewhere, with growing bets on another interest rate hold from the Reserve Bank of Australia (RBA) in September. Lee Sue Ann, economist at UOB Group, commented on the situation:
‘Australia’s seasonally adjusted unemployment rate rose to 3.7% in Jul, signalling the labour market may be at a turning point. Separately, wages disappointed again, with the wage price index (WPI) rising 0.8% q/q in 2Q23, against consensus of a 0.9% increase.
‘The RBA has held rates unchanged for two consecutive months, and following the slew of data we think they will keep policy unchanged at its next two meetings on 5 Sep and 3 Oct, unless we get upside inflation surprises from (July’s) CPI data.’
With the next policy meeting approaching in September, investors could be holding back with the Australian Dollar.
Pound (GBP) Undermined by Gloomy Economic Outlook
Meanwhile, the Pound (GBP) is struggling for demand against the riskier currencies as a market mood improves. Domestically, fears over the ongoing impacts of elevated interest rate hikes tipping the UK into a recession could be weighing on investors’ minds amid a lack of economic data.
Elsewhere, the August industrial Confederation of British Industry CBI survey revealed that factory output slowed again, marking the lowest reading since September 2020. However, with price pressures finally easing, the manufacturing sector could be buoyed looking forward. Martin Sartorius, CBI economist, said of the latest survey:
‘With output volumes contracting at their fastest pace since the COVID-19 pandemic and order books deteriorating, this survey makes for gloomy reading. However, easing price pressures will bring some relief to many manufacturing firms and the broader economy.’
Pound Australian Dollar Exchange Rate Forecast: Slowing Service Sector Growth to Dent Sterling?
Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the latest services and manufacturing PMI data for the UK. With both indices expected to slide, the more concerning measure is the crucial sector is edging closer to the contraction divide of 50. If PMIs print to forecast, a fourth consecutive month of declining activity could be a concern for GBP investors.
Meanwhile, the Australian Dollar could see a boost with the release of mixed PMIs. Manufacturing and services are expected to improve as the former could see the first expansion in the sector since February.