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Pound Loses Ground to Australian Dollar thanks to Underwhelming UK PMIs

Last week’s high: AU$1.8290

Last week’s low: AU$1.7889

Mixed UK PMIs Prompt GBP/AUD Exchange Rate Volatility

December’s set of UK PMIs proved rather mixed last week, with deterioration in the manufacturing and construction sectors contrasted by a rebound in services.

However, the uptick in the services PMI was not enough to give the GBP/AUD exchange rate a boost on Friday.

As the underlying details of the data still point towards weakening business confidence, the Pound struggled to find any significant support.

After the Chinese manufacturing PMI fell into a surprise state of contraction in December the mood towards the risk-sensitive Australian Dollar soured.

A slowdown in Chinese growth could have a significant negative impact on the Australian economy as demand for base metals diminishes.

Even so, this bearishness soon eased as the corresponding service sector data bettered forecasts to show a solid improvement on the month.

The strengthening service sector boosted confidence in the outlook of the Chinese economy, giving the Australian Dollar a lift against its rivals ahead of the weekend.

AUD Outlook: Widened Trade Surplus to Boost Australian Dollar

Confidence in the Australian Dollar could pick up more significantly on the back of Tuesday’s Australian trade data.

If the trade surplus widens as forecast this would point towards a greater degree of economic resilience, boosting AUD exchange rates.

On the other hand, any decline in export volumes could weigh on demand for the ‘Aussie’.

Australian retail sales will also be of interest.

Meanwhile, with Parliament returning from its winter break the Pound is likely to be exposed to fresh Brexit speculation in the days ahead.

As long as investors lack clarity over the likely shape of the future relationship between the UK and EU GBP exchange rates look set to remain on the back foot.

Key Events

8th January

00:30   Australia Trade Balance

08:30   UK Halifax House Price Index

21:30   Australia Services PMI

9th January

00:30   Australia Building Approvals

11th January

00:30   Australia Retail Sales

09:30   UK Trade Balance

09:30   UK Gross Domestic Product

 

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To keep up to date with the Australian Dollar, visit the AUD blog in our Currency News section.

 

Alastair Archbold

Foreign Exchange Manager

aja@fcgworld.co.uk

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