The Pound Australian Dollar (GBP AUD) exchange rate strengthened by around a cent in overnight trading on Monday as the recent rally in iron ore crashed and burned.
Prices for Australia’s largest export currently threaten to drop below the $60 a tonne marker, as the commodity has plummeted 37% from a multi-year high of $94.86 a tonne that it struck in late February.
Trade of iron ore on the Dalian Commodity Exchange plummeted from a high of 5% to just 1.1% during the Asian session as traders forecast that rising production will lead to a further depreciation in benchmark spot prices.
Xu Huimin, an analyst at Huatai Futures Co. in Shanghai said;
‘Iron ore currently holds the title of being the weakest commodity product. Traders absolutely don’t wish to hold it. I guess pressure from the arrivals of future shipments is too great.’
The ‘Aussie’ was weakened further by the release of Australia’s latest Retail Sales data, with figures showing that sales contracted for their second consecutive month in March, failing to reach expectations of 0.3% growth.
Markets fear that the lacklustre data (which suggests that consumer spending is slowing), will lead the Reserve Bank of Australia to maintain its dovish approach towards future monetary policy.
Meanwhile, the Pound was bolstered by a surge in like-for-like sales in April as the British Retail Consortium (BRC) reported that figures leapt from -1.0% to 5.6%, beating forecasts of a rise to 0.5%.
While the jump was no doubt impressive, it was tempered somewhat by the knowledge that the growth was driven by the late start to Easter this year and that the future data is likely to present a dourer outlook for the UK economy, thanks to the economic squeeze on household incomes.
Looking ahead investors are likely to focus on Thursday’s Bank of England monetary policy meeting, with the GBP AUD exchange rate likely to soften if Governor Mark Carney signals that the central bank will leave monetary policy unchanged for the foreseeable future, despite the recent uptick in PMI data.
Meanwhile, a lull in notable data until Friday will likely leave the Australian Dollar vulnerable to further price movements in the commodity market this week.
Current Interbank Exchange Rates
At the time of writing the GBP AUD exchange rate was trending around 1.76 and the AUD GBP exchange rate was trending around 0.56.
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