UK Construction output has fallen to a seven-month low today as the Australian third quarter GDP rose above forecast to push the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to a five-month low.
Australian Dollar (AUD) on Bullish Run after RBA Opts to Hold Fire on Interest Rates
Following a raft of more positive domestic data, including an improved Manufacturing PMI, the Reserve Bank of Australia (RBA) opted on Tuesday to leave interest rates unchanged at 2.00%. Although policymakers did not entirely rule out the possibility of monetary loosening over the course of the coming year the general assessment of the Australian economy was ruled to have been optimistic, leading to a surge in demand for the ‘Aussie’ (AUD). This was in spite of base metal prices having continued to slump in the wake of disappointing Chinese manufacturing data, with iron ore and gold in particular trending around multi-month lows.
The Pound (GBP) got off to a relatively strong start yesterday, thanks to the announcement that all seven of the major banks involved had passed the latest Bank of England (BoE) stress test. However, the appeal of Sterling took a blow when the UK’s November Manufacturing PMI clocked in decidedly lower than estimates. Domestic manufacturing output slipped from 55.2 to 52.7, indicating that sector growth was becoming more limited. As a result the GBP/AUD exchange rate remained on a sharp downtrend throughout the European session, hitting a daily low of 2.0567.
Strong Australian GDP, Disappointing UK Construction PMI Push GBP/AUD Exchange Rate to Five-Month Low
On Wednesday morning the antipodean currency extended its bullish run, bolstered by a better-than-expected increase in third quarter GDP. Rising from 2.0% to 2.5%, this reinforced the view that the Australian economy was strengthening as it continues to shift away from mining and towards more service-based growth. Following weaker data from the US the ‘Aussie’ has also benefitted from increasing speculation that the Fed might be deterred from an imminent interest rate increase.
Construction in the UK, meanwhile, was revealed to have slowed to a seven-month low as the November PMI decreased sharply from 58.8 to 55.3. This latest disappointment does not appear to bode well for tomorrow’s Services PMI, with the continued recovery of the UK economy seeming to have been stalled somewhat in the last month. With the BoE having already taken a generally dovish line with regards to the possibility of an interest rate move over the coming months this has spurred the Pound lower, dragging the GBP/AUD exchange rate to a fresh five-month low of 2.0510.
GBP/AUD Exchange Rate Forecast: Widening of Australian Trade Gap Predicted to Soften ‘Aussie’
Should tonight’s Australian Service PMI demonstrate an improvement in sector growth the ‘Aussie’ could extend its recent gains further still, while a weaker result is likely to somewhat dampen the antipodean currency’s present buoyance. As the October Trade Balance is forecast to show a widened deficit, however, the Australian Dollar is unlikely to hold its bullishness ahead of the weekend.
Any shortfall in Thursday’s UK Services PMI is expected to erode demand for Sterling, given that the service sector is the primary contributor to domestic growth. Nevertheless, should the index show continued expansion within the sector a stronger Pound rally could be on the cards.
Current GBP, AUD Exchange Rates
At time of writing, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was slumped in the range of 2.0506, while the Australian Dollar to Pound Sterling (AUD/GBP) pairing was making gains at 0.4876.
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