Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as UK Productivity Extends Decline

July 5, 2019 - Written by Frank Davies

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as UK Productivity Extends Decline

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slips as UK Productivity Disappoints

Ahead of the weekend the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate remained on the back foot thanks to another weak quarter of UK labour productivity.

As productivity contracted -0.2% on the year in the first quarter of 2019 this raised fresh questions over the underlying health of the UK economy.

With business investment constrained by lingering Brexit-based uncertainty productivity continued to fall, driven by an increase in the number of hours worked as wage growth remained lacklustre.

All in all, this rounded off a weak week of UK data, keeping Pound Sterling under pressure against its rivals as confidence in the economic outlook remained muted.

Australian Dollar (AUD) Exchange Rates Benefit from Construction Sector Improvement

A modest improvement in June’s Australian construction PMI offered a boost to the Australian Dollar, meanwhile, as the index picked up from 40.3 to 43.0.

Even though the construction sector remained in contraction territory this uptick was still enough to lift the mood of AUD exchange rates on Friday.

However, as the odds of further Reserve Bank of Australia (RBA) monetary loosening remained high this limited the potential for Australian Dollar gains.

As analysts at ANZ noted:

‘We see little alternative to further easing to achieve the 4.5% target for unemployment the RBA has set itself. Of course, that doesn’t rule out the Bank reaching the same conclusion but still pausing.’

Slump in Australian Business Confidence Forecast to Weigh Down AUD Exchange Rates

Further losses are forecast for the Australian Dollar on Monday as forecasts point towards a sharp dip in June’s NAB business confidence index.

With the headline index expected to drop from 7 to 2 this could offer investors fresh cause for concern over the economic outlook.

If business sentiment continues to deteriorate this is likely to constrain economic activity in the months ahead, increasing the risk of a weaker gross domestic product performance.

A similar decline in the Westpac consumer confidence index may also drive AUD exchange rates lower across the board, with weakening sentiment likely to increase RBA policymaker dovishness.

Signs of Slowing UK Economy to Dent GBP/AUD Exchange Rate

Speculation over Brexit may drive further volatility for the GBP/AUD exchange rate in the days ahead, with the threat of the UK crashing out of the EU without a deal still hanging over markets.

Wednesday’s UK gross domestic product report could also weigh heavily on the Pound, with investors expecting a weaker growth reading in light of recent data.

If the monthly GDP eases to -0.7% as anticipated this could see the Pound fall further out of favour as hopes of a second quarter growth rebound continue to fade.

On the other hand, any evidence of greater resilience within the UK economy may help to shore up the GBP/AUD exchange rate in the short term.

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TAGS: Pound Australian Dollar Forecasts