GBP AUD Exchange Rate Rallies as UK Construction Impresses

May 3, 2017 - Written by James Fuller

STORY LINK GBP AUD Exchange Rate Rallies as UK Construction Impresses

The Pound Australian Dollar (GBP AUD) exchange rate extended yesterday’s gains this morning following the release of the UK’s latest Construction PMI.

According to data compiled by IHS Markit activity in the UK’s construction sector grew from 52.2 to 53.1 in April, rising at its fastest pace in four months and greatly exceeding expectations that it would drop to 52.0.

The sector was buoyed by an uptick in demand for residential properties and on civil engineering projects, leading to a rise in employment and the largest increase in input buying since November.

Tim Moore, Senior Economist at IHS Markit said;

‘April’s survey reveals a positive start to the second quarter of 2017, with a robust upturn in civil engineering activity helping to boost the construction industry. There were also more encouraging signs from the house building sector, as growth recovered to its strongest so far this year. However, the performance of the commercial building sector remained subdued in the context of the past four years.’

However some concerns persisted over the impact of Brexit, with firms fearing a possible loss of access to high-skilled labour from abroad should negotiations with the EU sour and greater immigrations controls be place on movement.

Meanwhile the Australian Dollar weakened on Wednesday despite strong private sector figures last month.

The ‘Aussie’ initially strengthened overnight on Tuesday as AIG’s Services Index rose from 51.7 to 53.0 in April.

However this was not enough to offset market sentiment towards the antipodean currency ahead of this afternoon’s rate decision from the Federal Reserve.

While policy makers are not expected to alter interest rates at today’s meeting, economists predict that there may be some hint of rate hikes next month, with CME Group’s FedWatch tool currently placing the odds of a June hike at around 70%.
Should the Fed make moves to tighten monetary policy next month as expected the Australian Dollar is likely to lose out further as investors move away from riskier markets to the US Dollar (USD).

Looking ahead the Pound may cede some ground tomorrow if the UK’s own PMI slides from 55.0 to 54.5 in April as expected.

However with the Manufacturing and Construction sectors both defying market expectations and rising last month there is a good chance that the private sector could also put in a strong performance, a possible boon for Sterling as it makes up a large portion of the UK’s growth.

Meanwhile the Australian Dollar may soften overnight if Australia’s Balance of Trade narrows from 3.75bn to 3.4bn as expected, although this would still be a strong result, so the ‘Aussies’ losses should be minimal.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.73 and the AUD GBP exchange rate was trending around 0.57.

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TAGS: Australian Dollar Forecasts