Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered amid Mixed PMI Data

August 23, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered amid Mixed PMI Data

Pound (GBP) Under Increased Pressure amid Mounting Cost-of-Living Crisis

The Pound (GBP) failed to find a clear direction against it rivals on Tuesday as mixed PMI data still pointed the UK towards a recession.

The manufacturing sector unexpectedly contracted for the month of July, the first shrinking of the sector since May 2020. With the market forecasting a 51.1, a significant drop in customer demand, labour shortages, and input delivery delays all contributed to the contraction. Further adding to the downbeat mood was the falling of new businesses, the lowest since the height of the pandemic. UK businesses continue to feel the strain, and things could get worse before they get better. Dr John Glen, CIPS Chief Economist, said of the survey:

‘Supply chain managers reported client reluctance to spend as the cost of living and the cost of doing business remained at elevated levels and both domestic and export orders were affected. In turn, job creation took a hit with the weakest rise for 17 months as confidence dropped amongst manufacturers to the lowest for over two years.

‘Service companies had a better month, but only marginally as new order levels were sustained and optimism remained that customers would continue to buy throughout the year. However, this may reverse quite quickly.’

However, providing some modest support to Sterling was the better-than-expected services PMI data. With an expected 52, the services sector came in at 52.5, but still the softest increase in 18 months. Despite this modest improvement, the UK is precariously perched above stagnation. Annabel Fiddes, Economics Associate Director at S&P Global, said of the data:

‘The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers. Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020.’

Australian Dollar (AUD) Fluctuated on Mixed Data

The Australian Dollar (AUD) struggled for demand as a drop was seen in both the services and manufacturing sector for the month of July. With expectations of both industries to continue expanding, the preliminary data instead showed contractions in the service sector and a lower-than-expected manufacturing PMI.

Despite hitting the lowest level in 12 months, another expansion in the manufacturing sector marked a 27th consecutive month of growth. August’s manufacturing production saw an increase in sales and staff returning to work.

However, despite the downbeat PMI data, the release of the Australian labour market report lent some support to the ‘Aussie’. Lee Sue Ann, economist at UOB Group, is confident that the labour market is strong enough to support further rate hikes from the Reserve Bank of Australia (RBA). Ann said:

‘Overall, the Australian labour market looks to tighten further in the next couple of months before slowing growth will likely push the jobless rate higher back towards the 3.8%-4.0% levels. Wage growth is also expected to pick up to over 3% by 2023.

‘Following the 50bps hike earlier this month, the Reserve Bank of Australia (RBA) is thus expected to continue pushing interest rates higher. We now believe the RBA can afford to raise the cash rate by a further 40bps to 2.25% at the 6 Sep meeting, given the extremely tight labour market and soaring inflation.’

With a resilient labour market, the RBA are confident that the Australian economy can withstand further interest rate hikes as the central bank hopes to rein in inflation.
Also providing some much-needed support to the commodity-linked Australian Dollar are the growing value in two of its key exports, coal, and iron ore.

GBP/AUD Exchange Rate Forecast: RBA Speech to Boost the Australian Dollar?

With data to remain relatively thin on the ground for the Pound Australian Dollar exchange rate, all eyes will be on the RBA speech from Jonathan Kearns. Any further hints as to which direction the central bank will take on monetary policy, will likely influence the ‘Aussie’.

Elsewhere, persistent domestic woes could keep a firm lid on Sterling, as social unrest and political uncertainty will weigh heavily on the Pound.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts