Australian Dollar to Pound Exchange Rate Holds Above Lows despite Trade Jitters
Despite rising concerns about the possibility of a full blown ‘trade war’ between the US and China, the Australian Dollar to Pound (AUD/GBP) exchange rate has been able to hold above this week’s lows.
Last week saw AUD/GBP climb from 0.5447 to 0.5481, after touching on a yearly low of 0.5409. The Australian Dollar (AUD) appears to have support keeping it away from these lows, as AUD/GBP has fluctuated between 0.5448 and 0.5485 so far this week.
The Australian Dollar has avoided its worst levels despite Wednesday’s development that China had introduced a new set of stronger-than-expected tariffs on imports of US goods.
According to Gao Qi, strategist from Scotiabank;
‘China’s response was tougher than what the market was expecting — investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes.
Investors believe a trade war will hurt both countries and their economies eventually.’
As China is Australia’s biggest trade partner, Australian Dollar investors are anxious that Australia’s economy could be negatively impacted by a US-China ‘trade war’.
Of course, the Australian Dollar is also a risky trade-correlated currency, so trade news making investors averse to taking risks have weighed heavily on the ‘Aussie’.
AUD has been fluctuating though, rather than falling. This is because other investors still believe that both the US and China wish to avoid a ‘trade war’ if possible.
Australian Dollar (AUD) Exchange Rates Supported by Australian Retail Stats
On top of market hopes that the US and China both want to avoid a ‘trade war’, the Australian Dollar was also supported by Australian ecostats during Wednesday’s trade sessions.
While Australia’s February building permits results were disappointing, contracting at -6.2% rather than the forecast -4.2%, Australian retail sales grew twice as much as forecast.
Australian retail sales were forecast to have grown at 0.3% month-on-month in February, but instead came in at 0.6%. The previous figure was revised higher too, from 0.1% to 0.2%.
The data overall indicated that the trend of subdued household spending in Australia may be coming to an end. It was not enough to significantly improve the AUD outlook however.
Pound (GBP) Exchange Rates Mixed as UK Construction Prints Surprise Contraction
The Pound (GBP) was unable to hold its best levels against the Australian Dollar, as a disappointing UK construction PMI left the British currency less appealing.
Wednesday’s European session saw the publication of Britain’s March construction PMI from Markit. The PMI was forecast to have slipped from 51.4 to 50.9, but instead tumbled and contracted at 47.0.
It was the first time UK construction had printed below 50.0 in six months. In the index, 50.0 is the level representing the point between contraction and growth.
It followed the UK manufacturing PMI earlier in the week, which beat expectations and briefly boosted the Pound.
Australian Dollar to Pound (AUD/GBP) Forecast: UK Services PMI Could Drive Sterling
The Australian Dollar to Pound (AUD/GBP) exchange rate could see more defined movement towards the end of the week if UK services data inspires a shift in Sterling movement.
Britain’s March services PMI from Markit is set to be published during Thursday’s European session, and is currently forecast to have slipped slightly from 54.5 to 54.
If UK services slow further than expected, the Australian Dollar to Pound exchange rate could see a firmer recovery as Sterling would weaken.
Services make up a notable chunk of Britain’s economic output, so a disappointing services report could indicate that Britain’s economy is not as sturdy as expected.
Thursday will also see the publication of Australia’s March services PMI from AiG, as well as February’s trade balance results.
However, Australian Dollar investors are more likely to focus on US and China trade tariff developments. If both nations ramp up trade action against one another, the risky Australian Dollar’s recovery potential is limited.