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GBP AUD Exchange Rate Forecast to Hold Losses despite Damp Market Sentiment

Australian Dollar Currency Forecast
  • GBP AUD Exchange Rate Declines – UK post-Brexit PMIs disappoint
  • AUD Struggles versus Most of its Peers – USD strength adds to headwinds
  • GBP AUD Exchange Rate Forecast to Hold Losses – Weak UK data outweighs soft demand for risk-correlated assets
  • Traders Look ahead to UK GDP Data Next Week – Australian Consumer Prices report also expected to provoke GBP AUD exchange rate volatility

Despite the fact that the Bloomberg Commodity Index fell for the sixth day and oil prices dropped to a two-month low, causing market sentiment to dampen, the GBP AUD exchange rate softened by around -0.5% in the early stages of Friday’s European session.

GBP AUD exchange rate depreciation was due to weak British data rather than ‘Aussie’ (AUD) strength. Against the majority of its peers, the Australian Dollar declined.

GBP AUD Exchange Rate Declines following Soft Post-Brexit UK PMIs

As mentioned above, British ecostats disappointed today. The Manufacturing, Services and Composite PMIs were of particular significance as the reports were the first to pertain to a post-Brexit UK.

The preliminary estimate for July’s Manufacturing PMI did manage to avoid as steep a depreciation as markets had expected, but the result of 49.1 showed output contracted. In the same period, the Services and Composite PMIs declined beyond expectations, both holding below the 50 mark that separates growth from contraction. The massive drop in services output to 47.4 is of particular concern given that the services sector accounts for the largest portion of the UK’s gross domestic product.

Commenting on the UK’s flash PMIs, Chris Williamson, Chief Economist at Markit, said;

‘July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009. The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to ‘Brexit’. The one ray of light was an improvement in manufacturing export growth to the best for two years as the weak Pound helped drive overseas sales, though producers also suffered the flip-side of a weak currency as import prices spiked higher.’

Given the absence of further domestic data to provoke changes, the GBP AUD exchange rate is likely to hold losses for the remainder of Friday’s European session.

Damp Market Sentiment Not Enough to Offset GBP AUD Exchange Rate Losses

Against the majority of its currency competitors the antipodean asset is also faring poorly. US Dollar strength and the prospect of a near-term Federal Reserve rate hike continues to undermine appetite for risk and commodity-correlated assets.

Commodity prices have shaken earlier signs of a sustained recovery with the Bloomberg Commodities Index falling for the sixth consecutive day. This added to ‘Aussie’ headwinds. Brad Setser, writing for the Council of Foreign Relations, described the impact of low commodity prices on trading economies;

‘The “turning” point in trade came just after oil prices fell. And sharp falls in commodity prices in turn radically reduced the export revenues of many commodity-exporting emerging economies. For many, a fall in export revenue meant a fall in their ability to pay for imports (and fairly significant recessions). For the oil exporters obviously, but also for iron exporters like Brazil and Australia.’

Additional ‘Aussie’ headwinds can be attributed to speculation of near-term intervention from the Reserve Bank of Australia (RBA). Following from the most recent meeting, in which rates were kept unchanged, the publication of the minutes from said meeting revealed that policymakers kept the door firmly open for future stimulus measures.

On the other hand, however, RBA policymakers may be holding out for a Fed rate hike because that would reduce the value of the ‘Aussie’, negating the need to cut the official cash rate.

GBP AUD Exchange Rate Forecast: Australian Inflation data in Focus

Over the coming week there will be a number of influential domestic ecostats pertaining to both the UK and Australia with the potential to provoke GBP AUD exchange rate volatility.

Wednesday’s Australian inflation data will be the primary focus for ‘Aussie’ traders over the coming week. Meanwhile, Wednesday’s second-quarter British Gross Domestic Product data will be of significance. However, it will pertain to pre-Brexit Britain so may not be hugely accurate. The UK’s Consumer Confidence data for July will also be of significance, especially if it emulates the recent drop in retail sales.

During Friday’s European session the GBP AUD exchange rate was trending within the range of 1.7520 to 1.7787.