Weaker-Than-Forecast UK Construction Data Benefits Australian Dollar Pound (AUD/GBP) Exchange Rate
Even in the wake of the Trump administration’s decision to push ahead with heavy steel and aluminium tariffs the Australian Dollar to Pound (AUD/GBP) was able to hold onto a narrow uptrend.
This was largely due to the disappointing nature of the latest UK construction output and trade data, which fell short of forecast in January.
The UK construction sector remains a key concern for investors, with output found to have contracted -3.9% on the year as private housebuilding continued to decline.
With confidence in the domestic outlook already muted, thanks to ongoing Brexit-based uncertainty, investors saw little real reason to favour the Pound (GBP) on Friday.
However, as the wider sense of market risk appetite remained rather limited the AUD/GBP exchange rate was unable to particularly capitalise on these weaker figures.
Softer UK GDP Estimate Forecast to Dent Pound Exchange Rates
As markets braced for the publication of the NIESR gross domestic product estimate for the three months to February this offered additional support to the AUD/GBP exchange rate.
Forecasts point towards a slight loss of growth momentum, with the measure expected to ease from 0.5% to 0.4%.
With the UK economy looking set to come under further pressure as a result of Brexit uncertainty the outlook for growth remains somewhat muted.
On the other hand, a stronger growth figure here may encourage the Pound to recover some of its lost ground heading into the weekend.
Global Trade Tensions to Limit AUD/GBP Exchange Rate Upside
The upside potential of the AUD/GBP exchange rate is unlikely to pick up particularly in the coming days, especially if there is a general escalation in global trade tensions.
Worries over the potential negative impact of the US tariffs on the Australian economy, given its heavy reliance on mining, are expected to keep the Australian Dollar (AUD) under some degree of pressure.
This is likely to give the Reserve Bank of Australia (RBA) further incentive to leave interest rates on hold for longer, even as the wider global shift towards tighter monetary policy continues.
Following the RBA’s March policy decision analysts at Wells Fargo noted:
‘As was widely expected, the RBA held its key lending rate unchanged at 1.50 percent. We expect the RBA to stay on hold, as it remains clear that policymakers are content with current economic conditions. The language in the policy statement continues to emphasize improving global dynamics, without implying a particularly hawkish stance. Our baseline expectation is that the RBA will continue to remain on hold, before eventually joining other global central banks in normalizing policy later this year with an eventual rate hike. The key is whether or not the elusive wage growth materializes.’
Any softening of the NAB business confidence and Westpac consumer confidence indexes could also dent the AUD/GBP exchange rate in the coming week.