Pound to Australian Dollar Exchange Rate Recovery Hits a Wall as Australian Growth Impresses
A surprisingly strong Australian growth report prevented the Pound to Australian Dollar (GBP/AUD) exchange rate from continuing the recovery seen on Tuesday. This was despite Britain’s services PMI boosting the UK economic outlook slightly.
Despite climbing slightly higher last week, from the level of 1.7596 to 1.7632, GBP/AUD has quickly shed all those gains. On Monday, GBP/AUD briefly touched its worst level since January – 1.7396.
GBP/AUD has recovered slightly since Tuesday, but its recovery was limited due to strong Australian data and the pair trended close to the level of 1.7530 at the time of writing.
Both the Pound (GBP) and Australian Dollar (AUD) have strengthened this week, with both currencies finding solid support in domestic ecostats.
However, the Australian Dollar has ultimately climbed the most, with Australia’s latest ecostats having a more bullish effect on the nation’s economic outlook.
Pound (GBP) Exchange Rates Fail to Sustain Recovery despite Rebound in Services
Tuesday saw the publication of Britain’s most influential May PMI results, the services print. UK services were forecast to have improved just slightly, from 52.8 to 53, but unexpectedly improved to 54.
As services make up the biggest chunk of Britain’s economic activity, this data impressed investors and indicated that Britain’s economy had rebounded more than expected from the slow performance seen at the beginning of the year.
With Britain’s economic outlook perceived as slightly more optimistic, this also slightly boosted Bank of England (BoE) interest rate hike bets, overall leaving Sterling more appealing.
On the other hand though, analysts were careful to note that uncertainties remained in the services outlook, especially with the creation of new work dampened by Brexit uncertainties.
Thanks to a hat trick of better-than-expected May PMIs, Markit’s overall composite PMI improved from 53.4 to 54.3. Regardless, Sterling was unable to recover all of its losses against a stronger Australian Dollar.
Australian Dollar (AUD) Exchange Rates Strengthen as Australian Growth Impresses
Following an impressive Australian retail sales report at the beginning of the week, the Australian Dollar found further support on Wednesday in the form of a stronger-than-expected jump in Australia’s growth results.
Australia’s Q1 Gross Domestic Product (GDP) figures were originally forecast to have risen from 0.4% to 0.9% quarter-on-quarter, and from 2.4% to 2.8% year-on-year.
However, the quarterly figure jumped to 1.0% with the previous figure revised to 0.5%, and the yearly figure unexpectedly jumped to 3.1%.
The figure was the strongest quarterly increase since 2011 and marked a strong start to the year, but the Australian Dollar’s gains were ultimately limited.
A surge in mining exports in Q1 helped to bolster Australia’s domestic growth, but there are concerns that mining activity could weaken if the US were to spark a global trade war.
As a result, investors are concerned that Australia’s economy could see weaker performance in the second quarter and beyond.
Pound to Australian Dollar (GBP/AUD) Forecast: Australian Trade Figures in Focus
The Australian Dollar’s strong streak could continue on Thursday, if upcoming Australian trade data impresses investors.
Australia’s growth was bolstered significantly by exports in Q1, but trade war fears may have dampened trade activity since then.
As a result, investors will be watching April’s Australian trade balance report carefully when it is published during Thursday’s Asian session.
If there are signs that Australia’s economy is remaining resilient despite trade war fears, Australia’s growth outlook might actually be better than markets previously expected.
This could lead to higher Reserve Bank of Australia (RBA) interest rate hike bets, and of course a more appealing Australian Dollar.
As for the Pound, the British currency is likely to be influenced by Brexit developments towards the end of the week ahead of next week’s key UK inflation and unemployment results.
As long as Brexit uncertainties persist, the potential for Pound to Australian Dollar (GBP/AUD) exchange rate gains in the mid to long-term will be highly limited.
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