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Pound Australian Dollar Exchange Rate News: GBP/AUD Slipped amid Improving Chinese Recovery

June 5, 2023 - Written by John Cameron

Australian Dollar (AUD) Underpinned by Strong Chinese Rebound

The Australian Dollar (AUD) found some moderate strength to open the week after it was revealed China reported better-than-expected services PMI.

Against expectations of 55, the service sector jumped to 57.1, marking the fifth straight month of expansion. The reading also signalled the second fastest growth since November 2020. With new orders and employment growing substantially, the rebound follows stronger-than-expected manufacturing PMI last week. Markets were buoyed at the post-Covid recovery in the world’s second largest economy. Dr Wang Zhe, Senior Economist at Caixin, commented on the data:

‘Both services supply and demand expanded further in May. The gauges for business activity and total new orders both stood above 50 for the fifth consecutive month and logged their second-highest readings since November 2020.’

‘External demand also maintained strong momentum, with the measure for new export orders staying in expansionary territory for five months in a row. Services activity continued to rebound after China scrapped its “zero-Covid” policy in December.’

Pound (GBP) Supported by Elevated Rate Hike Bets

Meanwhile, the Pound (GBP) struggled for demand to open the week amid a lack of major economic data.

The final services PMI edged slightly higher than the preliminary figures and saw services remain in expansion territory, despite slipping below forecasts. Budget pressures remain elevated across the sector, with economic uncertainty mounting. However, resilient growth in new business and overseas orders grew, bolstering the sector. Dr John Glen, Chief Economist, Chartered Institute of Procurement and Supply (CIPS), said of the latest data:

‘The service sector was running in the opposite direction to the declining manufacturing sector in the UK, powering ahead with another strong rise in new orders including work from overseas and rising tourist numbers. Optimism was high with half of all respondents predicting a strong year ahead, keeping positivity close to April’s recent peak.’

However, the latest survey also revealed the persistently tight labour market. With the markets already pricing in interest rate hikes beyond the June meeting, the latest PMI reading will only bolster those expectations as the Bank of England (BoE) look to rein in inflation.

GBP/AUD Exchange Rate Forecast: RBA Interest Rate Decision to Dampen the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could see further movement with the latest interest rate decision from the Reserve Bank of Australia (RBA). Expectations of the central bank to keep the key interest rate unchanged at 3.85% could dampen demand. However, in light of recent strong data, a surprise to the upside could spur the ‘Aussie’.

Meanwhile, the Pound could be provided a modest boost if the latest British Retail Consortium (BRC) retail sales monitor prints to forecast. An expected fourth month of improving sales could boost Sterling despite the cost-of-living crisis.

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