GBP AUD Exchange Rate Dips on UK Manufacturing Slowdown

July 3, 2017 - Written by Toni Johnson

STORY LINK GBP AUD Exchange Rate Dips on UK Manufacturing Slowdown

Sterling’s latest losses against the Australian Dollar put the GBP AUD exchange rate at the best since June 28th, which is still a long way down from early June’s better pairing rate.

Pound Weakened by Disappointing UK Manufacturing Stats

The Pound has made a minor losses against the Australian Dollar today, coming in at a rate of 1.6922.

The main UK news has been that UK manufacturing activity has fallen in June. During the month, the level of manufacturing slowed by more than expected, dropping from 56.3 points to 54.3.

While the UK’s manufacturing sector is a relatively small contributor towards economic growth, this still represents negative news for the UK.

Offering some in-depth detail on the manufacturing stats was Duncan Brock of the Chartered Institute of Procurement and Supply;

‘Manufacturing activity showed signs of slowing this month, as fears that the sector would feel the impact of both the election and the start of Brexit talks materialised. While the sector remained in growth, a softening of new orders suggested some hesitancy from the UK to commit to new projects, which will be a worry as the domestic market has been the main driver of growth in the past two months’.

Brock was not entirely pessimistic about the news, however, seeing a silver lining among the clouds;

‘But, for now, optimism remains relatively high, job creation solid across corporates and SMEs and additional efforts are being made to improve efficiencies across the sector. Yet uncertainty remains the enemy, and the next few months will be a waiting game for manufacturers hoping for more stable conditions’.

Australian Dollar Rises despite Mixed Housing Market Stats

The slight AUD GBP gains seen today have come from a rise in national manufacturing and job advertisements in June.

An AUD rally has been prevented, however, by disappointing housing data. Building permits in May have fallen by -5.6%, contributing further to the national housing bubble due to higher prices.

Additionally, building approvals have slumped annually by -19.7% in May, further worsening the situation.

GBP AUD Forecast: Possibility of Three Poor PMI Results This Week

Today’s disappointing UK manufacturing PMI may just be the tip of the iceberg, as two more activity measures are due over Tuesday and Wednesday. Respectively, these will cover the construction and services sectors.

Both sectors are predicted to show slowdowns, but not to the point of contraction. Even if the services sector does not fall into contraction, however, the Pound may still be weakened by the news.

The services sector is the largest economic contributor for the UK, covering areas such as hospitality and tourism. If the services PMI does show a dip from 53.8 points to 53.5 or lower, the Pound could tumble against the Australian Dollar.

Also due on Tuesday will be Bank of England (BoE) financial policy committee minutes. These could boost the GBP AUD exchange rate if they offer a particularly optimistic outlook from the BoE.

On the other hand, any signs that the BoE foresees difficulties ahead for the UK economy could trigger a gradual Pound slide.

In the background of these planned data releases, the Pound could also be influenced by any government decision on the public sector pay cap. The government has come under increasing pressure to lift the cap, but could struggle to foot the bill if it finally does ease up on public sector wages.

This week’s big Australian news will cover retail sales and the Reserve Bank of Australia (RBA) interest rate decision, along with services and trade balance stats later in the week.

In the near-term, Tuesday is forecast to show a slump in May’s retail sales from 1% to 0.2%. The RBA is expected to leave interest rates untouched at 1.5%. If sales fall as forecast and the RBA gives a ‘business as usual’ statement then the Australian Dollar could drop.

As with the BoE, however, an optimistic outlook from RBA officials may be enough to push the Australian Dollar up, despite a direct decline in national data.

Wednesday will bring the AIG services index for June, followed by the construction index on Friday. In between these announcements will be the high-impact trade balance figure for May on Thursday.

This is forecast to show a trade surplus expansion, which could be enough to push up AUD demand at the end of the week.

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TAGS: Pound Australian Dollar Forecasts