AUD to GBP Exchange Rate Falls on Cautious RBA and Low Risk-Sentiment

April 4, 2017 - Written by John Cameron

STORY LINK AUD to GBP Exchange Rate Falls on Cautious RBA and Low Risk-Sentiment

The Australian Dollar to British Pound exchange rate slipped below the week’s opening levels on Wednesday and remained there for most of the day due to Britain’s solid services stats from earlier in the day.

AUD/GBP is likely to remain weak for the remainder of the week. With markets averse to risk due to political instability, the Australian Dollar simply lacks appeal among forex traders.

[Previously updated 05/04/2017]

Although the Australian service sector was found to have returned to a state of growth in March this was not enough to boost the ‘Aussie’ on Wednesday.

The GBP AUD exchange rate extended its gains on the back of a stronger-than-expected UK services PMI, with confidence in the strength of the economy boosted by this positive showing.

[Previously updated 04/04/2017]

The Australian Dollar to Pound exchange rate slipped from the week’s opening levels on Tuesday as mixed Australian data and low risk-sentiment gave investors little reason to buy the ‘Aussie’ this week. Sterling benefitted despite poor domestic PMIs.

AUD/GBP began this week trending at the level of 0.6080 and has fluctuated within a relatively narrow region since Monday. The pair briefly hit a low of 0.6058 and a high of 0.6100. On Tuesday the AUD/GBP trended in the region of 0.6070.

AUD Weakens as RBA Takes Cautious Stance

Investors lack a good reason to buy the Australian Dollar this week.

Despite the currency’s high success earlier in the year, poor commodity data and a cautious Reserve Bank of Australia (RBA) have led to investors ditching the ‘Aussie’.

During Tuesday’s Asian session, the RBA held its April policy decision. As expected, the bank left monetary policy frozen. However, those expecting the RBA to simply cut and paste its previous statement were disappointed when the bank took a decidedly dovish tone this month.

The bank focused increased concerns on Australia’s east coast property market. Some analysts expected this, but the bank was also less confident than before towards general domestic economic conditions.

This diminished hopes that the RBA could be edging towards a more hawkish stance on monetary policy.

Political and economic uncertainty in South Africa this week has also weighed heavily on risk-sentiment as forex traders favour traditional ‘safe haven’ assets over risky currencies like AUD.

GBP Fails to Capitalise as PMIs Fall below Expectations

Sterling investors haven’t had much to be optimistic about this week either, as the Pound’s gains against the Australian Dollar have more to do with ‘Aussie’ weakness than Sterling strength.

Monday’s UK manufacturing PMI for March unexpectedly worsened when it was expected to improve and March’s construction PMI, published on Tuesday, slowed further than expected.

The construction print was projected to merely slip from 52.5 to 52.4 but instead fell to 52.2.

These prints worsened concerns that Britain’s economy could slow during the Brexit process, even if Brexit negotiations appear to go smoothly. AUD/GBP would have fallen a lot further this week if not for the Pound’s own poor performance.

AUD/GBP Forecast: UK Services Data in Focus

Wednesday will see the publication of this week’s most important UK data, which could see the Australian Dollar to Pound exchange rate being influenced by movement in the Pound if it surprises traders.

Markit will publish its UK March services PMI. As services make up a notable chunk of Britain’s economic activity, this report will give investors a better idea of how Britain’s economy was performing at the end of the first quarter and could even cause shifts in UK growth forecasts.

If UK services improve less than expected or even fall, the Pound is likely to see poor performance until the end of the week.

However, better-than-expected services stats could cause investors to buy the Pound back from its Monday and Tuesday slips, causing AUD/GBP to plunge.

Wednesday will also see the publication of Australia’s own services PMI for March, from AiG. Investors are likely to brush over it and focus on overall risk-sentiment however.

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TAGS: Australian Dollar Forecasts