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GBP to AUD Exchange Rate Avoids Further Losses as Australian Growth Disappoints

June 5, 2019 - Written by Tim Boyer

Thanks to a stronger than expected UK services PMI today, the UK economy has avoided contraction for now, and this as well as some disappointing Australian data has prevented the British Pound to Australian Dollar (GBP/AUD) from suffering deeper losses. However, the pair’s strength is certainly limited amid Brexit uncertainty and weak UK growth overall.

Despite the Reserve Bank of Australia (RBA) cutting interest rates and Australian data disappointing investors, the Australian Dollar has been fairly resilient against the Pound this week so far. Following last week’s fall from 1.8356 to 1.8203, GBP/AUD has slipped lower this week and has tested lows of 1.8127. This was the lowest level for GBP/AUD since February.

At the time of writing, GBP/AUD was holding above those lows, but its recovery was modest and the pair still only trended close to the level of 1.8165.

The Pound lacks the drive to advance much, as Britain’s latest PMI data overall indicated that Britain’s economy was near stagnant in May. The ‘Aussie’ benefitted from rising Federal Reserve interest rate cut bets.

GBP Exchange Rates Avoid Further Losses as UK Services Sector Shows some Resilience

Sterling remains highly unappealing amid broad Brexit and political uncertainties, but the currency’s losses have slowed and the currency is seeing steadier movement this week so far.

The Pound found a little fresh support today, as the latest UK services PMI data beat market expectations.

Britain’s services PMI was forecast to have edged higher from 50.4 to 50.6, so the result of 51.0 indicated that the nation’s biggest economic sector was more resilient than expected.

However, due to poor manufacturing and contraction, the PMIs overall showed that Britain’s economic growth was weak in May. The composite print came in at 50.7, worryingly close to stagnation.

According to Chris Williamson, Chief Business Economist at IHS Markit:

‘Although service sector business activity gained a little momentum in May, with growth reaching a three-month high, the pace of expansion remained disappointingly muted and failed to offset a marked deterioration in manufacturing performance and a fall in output of the construction industry during the month. As a result, the PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.’

Brexit fears continued to dominate the Pound outlook overall, with no-deal Brexit fears returning and concerns that UK Prime Minister Theresa May could be succeeded by a hard Brexit advocate.

AUD Exchange Rate Gains Limited amid Slower Australian Growth

Despite this week’s Australian news giving markets little to cheer about, the Australian Dollar has performed relatively strongly this week so far as the currency has reacted to rising Federal Reserve interest rate cut bets.

As the Australian Dollar is a currency that is often correlated to risk-sentiment and trade news, fresh weakness in the US Dollar (USD) and expectations for lower US interest rates have made the Australian Dollar more appealing.

As a result, this week’s weaker US data, and comments from Federal Reserve officials indicating that interest rate cuts may be appropriate if the US economy takes a negative turn, have helped Australian Dollar investors to overlook weakness in Australia’s outlook.

Still, the latest Australian news has certainly limited the Australian Dollar’s potential for gains.

The Reserve Bank of Australia (RBA) took a cautious tone when it cut Australian interest rates this week, but analysts predict more cuts in the coming year.

On top of this, Australia’s Q1 growth rate came in slightly short of expectations quarter-on-quarter according to this morning’s report. This made investors hesitant to keep buying the Australian Dollar too much.

GBP/AUD Exchange Rate Forecast: Australian Trade Data in Focus

The Australian Dollar has been fairly resilient despite concerns about global trade tensions and fresh weakness in the Australian economy, so the Australian Dollar’s trajectory has the potential to change later in the week if Australian trade data is disappointing.

Australia is a trade heavy nation, so much of its recent strength could fade if Australia’s April trade balance disappoints investors tomorrow.

Further Australian data on Friday could also cause some late-week Australian Dollar movement. Australian construction PMI and home loans stats will be published.

Bank of England (BoE) Governor Mark Carney will hold a speech tomorrow, but Pound investors are more likely to focus on UK politics and Brexit speculation for the remainder of the week unless Carney takes a surprisingly dovish tone on monetary policy.
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