Pound Sterling to Australian Dollar Exchange Rate Boosted by Bullish UK Manufacturing

Published: Thursday, 1 September 2016 17:00 BST - Written by John Cameron

STORY LINK Pound Sterling to Australian Dollar Exchange Rate Boosted by Bullish UK Manufacturing

Australian Dollar Benefitted from Improved Chinese Data and Risk Sentiment

Despite the latest Australian Manufacturing PMI and Retail Sales figures both proving distinctly discouraging the appeal of Australian Dollar (AUD) exchange rates remained robust on Thursday morning.

In large part this was due to the continued strong performance of iron ore prices and an unexpectedly improved Chinese Manufacturing PMI, which showed a surprise uptick from 49.9 to 50.4 in August.

This suggestion that the world’s second largest economy is, at least currently, avoiding the threat of a hard landing encouraged market risk appetite, shoring up the antipodean currency in spite of the less encouraging outlook of the Australian economy.

Some of the details of the latest capital expenditure data were also considered to be Australian Dollar supportive, with Kieran Davies, research analyst at ANZ, noting:

‘Non-mining investment continued to improve. Real non-mining investment rose by 2% in Q2, the third increase in the past four quarters. While we are encouraged by this improvement, the capex survey misses key industries like health and education, and the broader GDP measure of non-mining capex has actually fallen over recent quarters.’

Unexpectedly Bullish Manufacturing PMI Boosted Pound Sterling Demand

While demand for the Pound Sterling (GBP) was initially muted the GBP/AUD exchange rate saw a strong uptrend in the wake of August’s UK Manufacturing PMI.


The index provided a strong upside surprise by climbing from 48.3 to 53.3, the joint-largest single increase since the survey was started more than two decades ago.

This would seem to imply that the manufacturing sector had been quick to shrug off the negative impact of the uncertainty surrounding the EU referendum, a prospect that encouraged investors to pile back into the Pound.

As a result the GBP/AUD exchange rate surged to a one-month high of 1.7656, despite the fact that much of the recovery was down to the relative weakness of the Pound and its positive impact on export demand.

Stronger UK Construction PMI Could Extend GBP/AUD Exchange Rate Uptrend

Markets are likely to continue to favour the Pound ahead of the weekend, although that positivity is dependent on the August Construction PMI demonstrating another solid recovery.

If the construction sector has not been shown to have shaken off its post-referendum worries then the GBP/AUD exchange rate could come under renewed pressure, with investors likely to engage in profit taking given the recent bullishness of Sterling.

On the other hand, support for the Australian Dollar could come in the form of a weaker US Non-Farm Payrolls report.

Any softening in the US labour market would be seen to diminish the odds of the Federal Reserve raising interest rates before the end of the year, which is a prospect that has been weighing heavily on the ‘Aussie’.

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