The Pound to Australian Dollar Exchange Rate Holds 1.28 as Aussie Retail Sales Disappoints

September 7, 2017 - Written by Toni Johnson

STORY LINK The Pound to Australian Dollar Exchange Rate Holds 1.28 as Aussie Retail Sales Disappoints

The Pound to Australian Dollar exchange rate is hovering around the daily open, quoted at 1.62857 on Thursday, 7 September.

Aussie Retail Sales printed at just 0.0%, 0.2% below market expectations.

The Aussie has seen weakness on foreign exchange markets after the most recent Australian ecostats have failed to impress markets.

After ending last week flatly due to weakness in both currencies, GBP/AUD has advanced this week. The pair hit 1.6387 yesterday – its best level since mid-August. Since then the pair has slipped and trends closer to the level of 1.63.

Undervalued Pound Sterling (GBP) Bought up from Lows

Demand for the Pound has improved in the last few days, despite mixed domestic news, as investors continue to buy the embattled currency back up from its recent lows.

Some analysts have suggested that Sterling has fallen so low that it would take considerable bad news for the currency to weaken much further.

According to Stuart Bennett from Banco Satander SA;

‘The starting point for Sterling is so low that it may need disastrous news for it to fall significantly lower,

The selloff since late October 2015 suggests that it has already priced in worse economic data than we have so far seen.’

This would explain why Sterling investors have overlooked this week’s poor UK data.

Markit’s UK PMIs for August were largely disappointing and indicated that Britain’s key services sector was seeing worse than expected performance in Q3.

On the other hand though, Halifax’s UK house prices report from August did beat expectations in both prints.

The year-on-year figure improved from 2.1% to 2.6% despite being forecast to remain at 2.1%. The monthly figure was expected to drop from 0.4% to 0.2%, but instead jumped to 1.1%.

Australian Dollar Weighed on by Underwhelming Domestic Stats

The Australian Dollar’s recent strong streak could be coming to an end, as Australian ecostats published in the past seven days have been largely underwhelming.

Australia’s August PMIs from AiG have slowed, with services dropping from 56.4 to 53 and construction sliding from 60.5 to 55.3.

Q2 Gross Domestic Product (GDP) data disappointed slightly too. While it improved from 0.3% to 0.8% quarter-on-quarter as many analysts predicted, some predicted it could reach as high as 0.9%. As a result, the 0.8% result was read as underwhelming.

Thursday’s Australian ecostats also failed to meet projections. July’s Australian trade surplus figure came in at A$0.46b despite being forecast to come in at A$0.875b. The previous figure was revised higher though, from A$0.86b to $A0.89b.

Lastly, Australia’s July retail sales results disappointed, slowing from a revised 0.2% to 0%, instead of remaining at the previous June result of 0.3% as forecast.

Jo Masters, senior economist at ANZ, commented on the retail sales report in a note;

‘Softening retail sales is consistent with our view that households will struggle to sustain consumption growth above income growth — particularly given weak wage growth and high levels of household debt — and we continue to see the consumer as a key risk to the economic outlook.’

Underwhelming domestic stats on top of a neutral stance from the Reserve Bank of Australia (RBA) on Tuesday has meant there is little reason for investors to buy the ‘Aussie’ this week, helping GBP/AUD to rise.

GBP/AUD Exchange Rate Forecast: UK Trade Balance Results Ahead

The Pound to Australian Dollar exchange rate could continue to see relatively volatile trade until markets close for the weekend, but the pair is still likely to end the week above its opening levels.

Sterling could see additional support if UK data impresses on Friday.

Friday’s UK data includes trade deficit data, industrial production, manufacturing production and construction output figures from July.

The consumer inflation expectation survey for Q3, as well as NIESR’s latest UK Gross Domestic Product (GDP) estimate, will also come in.

Over in Australia, July housing data will be published including home loans and investment lending for homes.

If Australian housing data impresses, the Australian Dollar could see slightly stronger demand as the housing market is one of the Reserve Bank of Australia’s (RBA) primary concerns.

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