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Daily GBP AUD Trading: Pound Appreciates despite Mixed UK Stats

October 10, 2017 - Written by Ben Hughes

On Monday’s trading session, the Pound advanced against the Australian Dollar from an opening exchange rate of 1.6827 to close around 1.6935 at the end of the day.

This was positive movement in the GBP AUD exchange rate, but wasn't good enough to touch the early-October high of 1.7101.

GBP AUD Exchange Rate Update: Pound Weakened by Poor Trading Data

Although the Pound has made a small advance against the Australian Dollar recently, this has been at a time of great uncertainty about the UK economy.

The headline news has been that the UK trade deficit has expanded in August, instead of contracting as expected.

While there were no expectations for a rise to a surplus range, this news has still proven alarming because of the fine detail.

Specifically, UK exports to the EU have grown, but fallen in non-EU destinations. This has been problematic news, because with the Pound being devalued, the hope was that overall exports would be increasing.

Giving a balanced outlook, Kate Davis of the Office of National Statistics said;

‘This latest set of key economic indicators presents a mixed picture with signs of improvement in UK manufacturing offset by the continuing sluggishness of the construction sector and a widening of the underlying trade deficit in recent months’.

As it is, Pantheon Macroeconomics Chief UK Economist Samuel Tombs has warned that;

‘Sterling’s depreciation has not had a silver lining. The UK isn’t benefiting from a trade boost because exporters have increased their Sterling prices by 15% since the Pound’s peak in November 2015.
Britain’s future trade links are uncertain’.

The other major UK news today has been more supportive, consisting of a rise in UK manufacturing in August. While the annual rise from 2.7% to 2.8% wasn’t immediately notable, the 2.7% figure was revised up from 1.9%.

Construction output also rose by 3.5% in August, while yearly industrial production increased by 1.6%.

Looking at the long-term impacts of this data was Howard Archer of EY Item Club. Reflecting on how the Bank of England (BoE) could respond to the news, Archer said;

‘[The] August rise in UK manufacturing and construction output will likely fuel expectations of [a] November BoE [interest] rate hike, despite disappointing trade data’.

Finally, another positive announcement has come from the ONS, on the subject of wages. The ONS has revised up its Q2 unit labour cost figures, from 1.6% to 2.4%.

Because of what unit labour costs measure, this implies a rise in UK average wages might be incoming. This would open up the door to a November interest rate hike, as higher wage growth would lower the damage caused by a rate hike after over a year at 0.25% interest.

Australian Dollar Slips despite Rising Confidence Score

Improving business conditions in Australian have failed to support the Australian Dollar today, with the AUD GBP exchange rate falling slightly.

The main news has been that the NAB business confidence measure for September has risen from 5 points to 7, beating a 6-point forecast.

According to NAB analysts, however, the Australian retail sector remains prone to weakness. Looking at the stats, NAB Chief Economist Alan Oster said;

‘Business conditions at these levels tell us that the business sector in Australia is doing very well.

We have certainly seen that reflected to some degree in areas like corporate profits and jobs growth, but other aspects of the economy, such as business investment, have been somewhat disappointing in comparison.

The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent and sustained rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well’.

GBP AUD Exchange Rate Forecast: BoE Speech could Trigger Pound Advance

The Pound might be able to appreciate further against the Australian Dollar on Thursday, assuming that Bank of England (BoE) official Andy Haldane backs a November interest rate hike.

From Australia, the next news will be Wednesday’s early consumer confidence figures. On the month, expectations are for a minor dip in October. This might cause a marginal level of AUD depreciation.
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