The Pound to Australian Dollar exchange rate (GBP/AUD) fell to its lowest level in almost seven weeks earlier this morning as traders reacted to a better-than-expected Australian retail sales report.
Doubling economists’ forecast of 0.3%, it was reported that retail sales jumped by 0.6% during June. The sturdy score came about as consumers down under recovered from May’s budget-driven downturn. Upbeat sales figures for housing goods and clothes contributed strongly to the retail sales print.
Sterling started the week softer against the Australian Dollar following a difficult day of trading on Friday. GBP/AUD suffered on Friday morning when it was announced that British manufacturing output accelerated at a rate of just 55.4, rather than the anticipated rate of 57.2.
The disappointing factory output measure marked the worst score for over a year and the slowest rate of job creation for nine months. It was seen to give the Bank of England a little more leeway in terms of keeping interest rates at the current record low of 0.50%.
The Pound to ‘Aussie’ Dollar exchange rate weakened further during the afternoon when it was announced that US non-farm payrolls only increased by 209,000 in July, missing forecasts of 231,000. The lower-than-anticipated labour market reading bolstered demand for the Australian Dollar because it was seen to take away a little bit of pressure from the Federal Reserve to start hiking interest rates in the immediate future.
In more bad news for the US Dollar, but good news for the ‘Aussie’, it was reported that American wages rose by just 2.0% compared to forecasts of 2.2% and a separate report showed that the headline US unemployment rate ticked higher from 6.1% to 6.2% last month.
Taking into account all the latest data it is still likely that the BoE will start raising rates in November this year or February next year, whilst the Fed should follow suit sometime fairly soon after.
The next key event for the Sterling to Australian Dollar exchange rate (GBP/AUD) is tomorrow’s interest rate decision from the Reserve Bank of Australia. The RBA is almost certainly going to maintain its current record low interest rate of 2.50% but the bank’s neutral policy stance ensures that markets will be paying attention when the announcement is made. A surprise reduction could seriously undermine the ‘Aussie’ Dollar whilst any shock hike could send the Antipodean currency soaring.
If the central bank decides to hold rates at 2.50% then traders will turn to the accompanying press conference for signs of future rate movement.
UPDATED 09:50 05 August, 2014
RBA Decision Boosts Australian Dollar Exchange Rate
On Tuesday the Australian Dollar extended its advance against peers like the Pound in the wake of the Reserve Bank of Australia’s fairly neutral interest rate decision.
The RBA left interest rates on hold and intimated that no further rate movement is likely to occur over the rest of the year.
However, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate trimmed gains following the publication of the UK’s Services PMI.
The measure of the UK services sector jumped from 57.7 in June to 59.1 in July, smashing expectations for a reading of 58.0. The GBP/AUD exchange rate is likely to stay trending higher as the day continues.
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