The Pound to Australian Dollar exchange rate (GBP/AUD) struck a fresh 51-month high of 1.8658 last night as traders reacted to softer-than-anticipated readings for Manufacturing output in Australia and its largest trade partner China.
The official Chinese Manufacturing PMI report showed that factory output decelerated from 51.4 to 51.0 during December as weak credit growth impacted performance. HSBC’s Manufacturing result printed inline with economists’ expectations at 50.5. HSBC reported that weak new export orders prevented the PMI from registering a higher score.
The Chinese PMI report is especially important for traders of the ‘Aussie’ Dollar because China import more of Australia’s raw mining produce than any other nation. Accordingly, the Australian Dollar often appreciates when Chinese Manufacturing output is booming. The report is considered a good barometer of risk appetite because China is the second largest economy in the world and this also affects demand for the risk-sensitive ‘Aussie’.
In Australia it was reported that AiG’s Performance of Manufacturing Index slid by -0.1 point to 47.6 in December, marking the second month of contraction for the sector. With Australia’s decade-long mining boom seen to have reached its peak, prospects for the domestic economy appear to be fading as hopes of a Manufacturing-led rebalancing prove unfounded.
With British GDP picking up in 2013 and Bank of England interest rate hike expectations increasing with each positive domestic ecostat, GBP/AUD appreciated by a massive 40 cents in the final three quarters of the year.
Recent comments from the Reserve Bank of Australia, as well as sentiments from Prime Minister Tony Abbott, suggest that the RBA could cut interest rates at some point in 2014 to help boost Australia’s export market.
The diverging outlook of the two currencies’ respective Central Banks means that the Sterling to Australian Dollar exchange rate is liable to rally further as we enter a New Year of trading.
Later on this morning it is predicted that Manufacturing output in the UK will print at 58.2 for December. At just -0.2 points below November’s 3-year high, the PMI print is likely to bolster demand for the Pound.
During the afternoon the American Manufacturing ISM is forecast to come in at 56.9, which is slightly below November’s score of 57.3. However, if the factory output figure beats the market consensus then the Australian Dollar could decline due to fears that the Federal Reserve will taper its asset purchasing programme again in January.