July 24, 2020 - Written by Ben Hughes
STORY LINK GBP to AUD Exchange Rate Holds its Ground as UK Services Data Beats Forecasts
Market risk-sentiment has become shaky again in recent sessions, with mixed market sentiment over issues like the coronavirus and the US-China trade war making it easier for the British Pound to Australian Dollar (GBP/AUD) exchange rate to recover. Looking ahead to next week, more key Australian data could bolster Australian Dollar demand if it impresses, but coronavirus developments are more likely to be vital.
Following last week’s bearish GBP/AUD movement, this week has been more volatile for the pair. GBP/AUD opened this week at the level of 1.7965, and after a brief climb higher the pair plummeted. In the middle of the week, GBP/AUD touched on a low of 1.7702 - the worst level for the pair in about a year.
Since then, GBP/AUD has rebounded though as investors buy it back from these worst levels. At the time of writing on Friday, GBP/AUD trends just around the week’s opening levels again.
GBP Exchange Rates Find Support as UK Data Beats Forecasts
For most of the past week, the Pound’s outlook has been weighed by a mixture of domestic coronavirus and Brexit concerns.
Investors have been anxious about the pandemic’s long-term impact on the UK outlook, and fears that the UK could head for a no-deal Brexit have only added to the Pound’s anxieties.
However, while no-deal Brexit fears did weigh heavily on Sterling in the middle of the week, investors have been buying the Pound back from lows again since then and the latest UK data has only further supported this recovery.
This morning saw the publication of Britain’s June retail sales and July PMI projections, all of which came in stronger than forecast.
The stronger than expected economic activity bolstered hopes that Britain’s consumers and businesses could bounce back from the coronavirus lockdown. Some analysts predict July retail sales will show further recovery when they are published next month.
However, some analysts are predicting that the impacts of the coronavirus could be felt for some time despite some optimistic figures. According to James Smith, Developed Markets Economist at ING:
‘A safety-conscious consumer, as well as the increasing financial challenge posed by rising unemployment, suggest that the overall economic recovery is unlikely to a full ‘V-shape’.
Despite a strong recovery in retail sales during June, we don’t expect the size of the UK economy to return to pre-virus levels until 2022 or later.’
AUD Exchange Rates Fail to Hold Highs as US-China Trade Tensions Intensify
The Australian Dollar briefly trended near its best levels in a year against the Pound earlier in the week, but the currency has been unable to hold its best levels.
Towards the end of the week, fears rose that global coronavirus pandemic’s long-term impact on the global economy could be worse than previously feared.
On top of this, market risk and trade sentiment was weakened by news of rising tensions between the US and China. It led to fresh concerns over the trade war between the nations.
It comes as China ordered the US consulate in Chengdu to be closed. It happened in retaliation to news that the US had ordered a Chinese consulate in Texas to close.
According to China’s Ministry of Foreign Affairs:
‘The current situation between China and the United States is something China does not want to see, and the responsibility rests entirely with the United States,’
The news weighed on the Australian Dollar towards the end of the week, making it harder for the currency to benefit from the latest Australian PMI projections.
While Australian manufacturing was a little weaker than expected in July’s projections, services rebounded more than expected.
GBP/AUD Exchange Rate Forecast: Coronavirus and Australian Inflation in Focus
Could the Pound continue to hold its ground after its recovery in recent sessions? GBP/AUD could continue to avoid losses unless the Australian Dollar strengthens again. However, the Pound’s own outlook remains filled with uncertainties.
Britain’s economic calendar next week will be relatively quiet. It could leave Sterling reacting more to political news.
Investors may be hesitant to buy the Pound much higher unless there are notable developments in Britain’s coronavirus or Brexit outlooks. If there are fresh hopes for a Brexit deal to be made in the coming month or so, the Pound could see stronger support.
Without this though, the Australian Dollar may be more likely than the Pound to see a shift in movement over the next week.
If global risk-sentiment continues to weaken amid coronavirus and US-China tensions, the relatively risky Australian Dollar could come under fresh pressure.
Key Australian data due next week will be closely watched as well. Australian inflation rate data from Q2 is due, as well as the Reserve Bank of Australia’s (RBA)
latest trimmed and weighed mean stats.
Strong Australian data could be more likely to keep the Pound to Australian Dollar exchnage rate under pressure.
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TAGS: Pound Australian Dollar Forecasts