Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted on Aussie Recession Woes
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained largely flat this morning. This left the pairing trading at around AU$1.8177.
The Australian Dollar rallied this morning as risk appetite continued to improve. This allowed the Australian currency to rally to a five-month high against the US Dollar (USD) today.
Hopes for further government stimulus and a global economic recovery sent traders flocking away from safer bets.
According to FX strategist at Daiwa Securities, Yukio Ishizuki:
‘The US Dollar is generally weak. The Australian Dollar has a lot of room to run because there are still a lot of shorts that need to be covered. The economy recovery story is the main factor.’
Meanwhile, ‘Aussie’ gains were likely limited after GDP data showed growth in the economy contracted in the first quarter as expected.
Australia’s treasurer stated the country was already in recession, as GDP slumped -0.3% in Q1. This left GBP/AUD flat.
Speaking to reporters in Canberra, Treasurer Josh Frydenberg said:
‘Based on what we know from Treasury, we’re going to see a contraction in the June quarter, which is going to be a lot more substantial than what we have seen in the March quarter.’
Added to this, annual growth increased to just 1.4%, the slowest since the 2009 global financial crisis. The country’s economy was battered by the worst bushfire season in living memory, the coronavirus pandemic and a prolonged drought.
However, sentiment amongst investors continued to improve as lockdown restrictions continued to be eased and commodity prices rose.
Sterling (GBP) Flat as UK PMI Reveals ‘Deeply Concerning Picture’
The Pound remained flat against the Australian Dollar on Wednesday morning after PMI data revealed the severe downturn in the country’s services sector continued in May.
Although, the pace of decline slowed since April’s rapid downturn due to the coronavirus pandemic.
The latest PMI reading rose from April’s 13.4 to 29 in May, which likely offered GBP some support.
Although, Markit revealed over half surveyed reported a decrease in business activity, while just 13% reported an increase.
Commenting on this, Group Director at the Chartered Institute of Procurement and Supply, Duncan Brock noted:
‘May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.
‘As restrictions are eased, there is still extreme uncertainty about how the pandemic will pan out. Continued anxiety about the coronavirus means consumer spending may not be the wind beneath the sails of any immediate return to pre-virus economic activity.’
Pound Australian Dollar Outlook: Retail Sales and Brexit Talks in Focus
Looking ahead, the Australian Dollar (AUD) could give up some of today’s gains against the Pound (GBP) following the release of dire retail sales data.
If Australian sales plummet in April due to the coronavirus pandemic, it will weigh on the ‘Aussie’.
Meanwhile, the main focus for Sterling traders is likely to be the ongoing post-Brexit negotiations between the UK and European Union.
If talks show progress on key issues that previously left negotiations at a standstill, the Pound Australian Dollar (GBP/AUD) exchange rate will edge higher.