Strong UK Data Doesn't Prevent GBP AUD Losses

January 5, 2017 - Written by John Cameron

STORY LINK Strong UK Data Doesn't Prevent GBP AUD Losses

The Pound to Australian Dollar exchange rate continued to plunge on Friday afternoon as risk-sentiment remained strong despite an increase in demand for the US Dollar.

If prices of iron ore begin to fall in the coming week as many forecasters believe it will, the Australian Dollar could be undermined and GBP/AUD could register some solid gains.

(Previously updated 05/01/2017)

The Pound to Australian Dollar exchange rate continued falling on Thursday despite Markit publishing a trio of strong UK PMIs throughout the week, as high risk-sentiment kept the Australian Dollar sturdy.

GBP/AUD began the week at the level of 1.7128 and has since fallen over two cents. On Thursday, it hit its worst level in almost a month – 1.6821.

Pound (GBP) Fails to Recover Despite Strong UK PMI Trio

Sterling has tumbled this week against the Australian Dollar and other rivals, due largely to Brexit jitters as the UK government is set to begin the Brexit process proper in under three months.

This, as well as news that the UK’s most senior UK-EU diplomat (Sir Ivan Rogers) had resigned from his role as EU ambassador weighed on Sterling this week and left the currency unappealing.

Demand for the Pound improved slightly thanks to Markit’s trio of better-than-expected UK PMIs from December.

Most notable was Thursday’s services PMI which improved from 55.2 to 56.2 despite being expected to fall. As services are Britain’s biggest economic sector, this helped Sterling emerge from its worst weekly levels. However the figure was not enough to inspire a Sterling recovery.

Australian Dollar (AUD) Strong on Lasting Risk-Rally and Domestic Data

Investors are becoming increasingly uncertain about the US economy’s future, which has allowed USD rivals to advance slightly.

Impressive commodity price news has also bolstered demand for risky currencies like the Australian Dollar.

This week it was reported that prices of iron ore grew 81% in 2016. While analysts believe the commodity will fall back this year, it has largely held its ground this week and lasting iron ore cheer has boosted AUD appeal.

Domestic news has also boosted demand for the ‘Aussie’ this week. AiG’s manufacturing results beat expectations when they were published on Tuesday, and Thursday’s services PMI also impressed, jumping from 51.1 to 57.7.

GBP/AUD Forecast: Sterling to Recover when Risk Appetite Fades

This week’s UK PMIs have given traders a little more optimism that the UK economy will continue to perform well into the start of the Brexit process, but according to Chris Williamson from Markit investors should not expect the Bank of England (BoE) to become more hawkish on interest rates.

Regardless, with a new UK-EU ambassador (Sir Tim Barrow) appointed and Britain’s economy seeing no slowdown, demand for the Pound could improve in the coming week.

Its best chance to advance against the ‘Aussie’ will be when the current risk-rally ends, which will become inevitable as US President-elect Donald Trump’s inauguration approaches on the 20th of January and traders look towards safer investments.

As for this week’s movement, GBP/AUD may also be influenced slightly by Friday’s Australian trade balance results. The pair may fall further if these impress, but if the day’s US Non-Farm Payroll results impress USD investors the ‘Aussie’ might weaken and allow GBP/AUD to advance.

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