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GBP AUD Exchange Rate Mounts Recovery as Retail Sales Pick up in July

July 27, 2017 - Written by Toni Johnson

The Pound Australian Dollar (GBP AUD) exchange rate has rallied this morning, recouping around half a cent in the losses which the pairing posted overnight on Wednesday.

Pound (GBP) Rallies as CBI Reports Jump in Retail Sales

The Pound managed to recoup some of its overnight losses against the Australian Dollar this morning following the release of some impressive UK retail data from the Confederation of British Industry (CBI).

According to the CBI, retail sales growth markedly picked up in the year to July, with the CBI’s index of Distributive Trades surging from 12 to 22 this month, easily beating expectations that growing pressures on consumers would cause it to dip to 10.

The survey of British firms revealed that sales volumes continued to expand at a healthy pace over the last month with grocery and clothing sales proving to be particularly strong as the warmer weather helped seasonal sales exceed expectations.
The outlook amongst the retails surveyed also appeared to be upbeat, with over 40% of respondents expecting that sales volumes will strengthen further in August.

However not all those surveyed were so positive, with many motor traders reporting their fastest drop in sales since November 2013, while other fear that falling consumer spending could begin to bite in the coming months.

Anna Leach, CBI Head of Economic Intelligence, said;

‘The warm summer has added a sizzle to our high streets as shoppers defied expectations, with sales growth in clothing shops and grocers driving overall performance.’

‘But while retailers expect a similar pace of growth next month, the factors underpinning their sales growth are more shaky. Although employment is strong, real incomes are falling in the wake of higher inflation, and that’s expected to feed slower consumer spending growth ahead.’

Australian Dollar’s (AUD) Bolstered by Jump in Iron Ore

The Australian Dollar was able to make significant advances against the Pound overnight on Wednesday as iron ore prices pushed back above the $70 a tonne barrier.

Prices for higher grade benchmark 62% fines surged by 1.37% to $70.43 a tonne by the start of Thursday’s session, bringing its total rally this week to 4.9%.

The jump also brings the commodity to its highest level since early April, after climbing 32% from a one-year low of $54 a tonne struck in June.

The latest strength in iron ore appears to have been driven once again by demand in China as Chinese steel mills continue to restock after producing a record high of 73.231 million tonnes of rebar in June according to World Steel Association (WSA).
Analysts at Macquarie Bank said;

‘In addition to the generally positive macro sentiment toward China, iron ore has been supported by steel mill inventory restocking.’

‘According to Mysteel data mill inventory has risen from 20.6 days in mid-June to 24.3 days by mid-July, and with strong profit margins mills are looking to continue to lift inventory which may continue to support prices near term.’

With iron ore being Australia’s largest export by dollar amount the latest jump in prices was openly welcomed by traders and helped to make the ‘Aussie’ even more attractive for investors flocking away from the US Dollar (USD) following the dovish tone of the Federal Reserve’s latest policy meeting.

GBP AUD Forecast: UK Consumer Confidence to Slide on Wage Fears?

Looking ahead the GBP AUD exchange rate is likely to dip even further on Friday with the release of the UK latest Consumer Confidence survey.

Analysts forecast that the index will have slipped from -10 to -11 in July as soaring inflation and anaemic wage growth takes its toll and erodes household finances, whilst the uncertainty of Brexit also continues to weaken sentiment.

Meanwhile the Australian Dollar may strengthen overnight on Thursday as the latest domestic Producer Price Index is expected to have risen from 0.5% to 0.6% in the second quarter.

Current Interbank Exchange Rates

At the time of writing the GBP AUD exchange rate was trending around 1.6415 and the AUD GBP exchange rate was trending around 0.6091.

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