Bullish Chinese Data Prompts Australian Dollar (AUD) Exchange Rate Rally Today
A stronger-than-expected Chinese Services PMI has helped to bolster the ‘Aussie’ (AUD) on Wednesday morning, despite the latest Australian Trade Balance demonstrating a wider deficit than forecast. Consequently the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been slumped around 2.0406.
Earlier…
With risk aversion rife the Australian Dollar (AUD) was dented further today after the Reserve Bank of Australia (RBA) suggested that an interest rate cut might be on the cards.
Pound Sterling to Australian Dollar (GBP/AUD) Exchange Rate Bolstered as UK Manufacturing Expands
Last week’s strong commodity rally was ended on Monday by the news that China’s Manufacturing PMI had contracted for the sixth consecutive month in January, suggesting that the world’s second largest economy remained in a state of slowdown. Consequently this saw the Australian Dollar (AUD) softened against rivals, with base metal prices returning to a downtrend as markets returned to a mood of greater risk aversion. Although Sunday’s TS Securities Inflation demonstrated that inflationary pressure within the Australian economy had continued to build at the beginning of the year this was not enough to boost the weaker antipodean currency.
In spite of some concerns over the progress of Prime Minister David Cameron’s negotiations with European Commission President Donald Tusk the Pound (GBP) was on more bullish form at the start of the week. Traders were reassured after the latest UK Manufacturing PMI unexpectedly strengthened from 52.1 to 52.9, seeming to indicate that the domestic economy had managed to shrug off much of the impact of the early year’s volatility. As a result the GBP/AUD exchange rate trended steadily higher throughout the day.
Dovish RBA Prompt Australian Dollar (AUD) Downtrend despite Holding Interest Rates Unchanged
Unsurprisingly the Reserve Bank of Australia (RBA) opted to leave interest rates unchanged at its first policy meeting of 2016, although policymakers took a rather more dovish tone in suggesting that there remains scope for a rate cut in the near-future. The latest signs of weakness in China alongside the strengthening US Dollar (USD) are continuing to drag on the Australian economy, undermining the more positive impact of recent employment data. Consequently the ‘Aussie’ slumped across the board, exacerbating the continuing trend of risk aversion among traders.
Thus, although the UK Construction PMI was decidedly weaker than expected, clocking in at 55.0 rather than 57.5, the Pound has continued to extend its gains against the antipodean currency this afternoon.
GBP/AUD Exchange Rate Forecast: Pound to Slump as UK Services PMI Predicted to Weaken
Should tomorrow’s Australian Trade Balance show a greater narrowing of the national trade deficit, as forecast, then the ‘Aussie’ may stand to strengthen its footing against the somewhat muted Pound. If the underlying fundamentals of the domestic economy remain generally stronger then the likelihood of an imminent RBA rate cut can be expected to decline, boosting the Australian Dollar.
Investors will also be interested in the latest UK Services PMI, as the service sector forms the largest contributor to the nation’s GDP. Forecasts suggest that growth in the sector declined slightly in January, an indication which would not bode especially well for the UK economy and could see Sterling weakened significantly.
Current GBP, AUD Exchange Rates
At the time of writing, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was making gains around 2.0418, while the Australian Dollar to Pound Sterling (AUD/GBP) pairing was slumped in the region of 0.4895.
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