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Pound Australian Dollar (GBP/AUD) Exchange Rate Holds Ground as Australian Construction Plunges

Australian Dollar Currency Forecast

Slump in Australian Construction Work Fuels Pound Australian Dollar (GBP/AUD) Exchange Rate Gains

As Australian construction work done slumped sharply in the fourth quarter this helped to keep the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate on a positive footing.

The -3% drop in construction work significantly exceeded expectations of a -1% decline, dragging the Australian Dollar (AUD) lower across the board.

This latest signal of weakness from the Australian economy left investors with little incentive to favour the antipodean currency, particularly in the face of wider market risk aversion.

With markets in a distinctly bearish mood thanks to growing fears over the spread of Covid-19 AUD exchange rates were left on the back foot on Wednesday.

As the virus looks set to deal a significant knock to global economic activity in the first quarter, building on weakness already seen at the end of 2019, confidence in the Australian outlook continued to diminish.

UK Shop Price Index Contraction Limits GBP Exchange Rate Support

The mood towards Pound Sterling (GBP) also weakened, however, as February’s British Retail Consortium shop price index disappointed forecasts.

Prices saw a -0.6% contraction on the month, highlighting the limited nature of recent inflationary pressure.

With the Bank of England (BoE) already looking at risk of adopting a more dovish outlook in the months ahead any deeper decline in prices could weigh heavily on the Pound.

As long as the case for an interest rate cut appears to build the GBP/AUD exchange rate looks vulnerable to further selling pressure.

Even so, the weaker nature of the Australian Dollar helped to limit the Pound’s downside for the time being as investors focused on global growth worries.

Signs of UK Consumer Confidence Improvement Set to Offer Pound Boost

While the uncertainty surrounding the next round of UK-EU trade negotiations looks set to weigh on GBP exchange rates for some time to come the Pound could still find a rallying point ahead of the weekend.

Forecasts point towards a modest improvement in February’s GfK consumer confidence index, suggesting that wider global anxiety has failed to weigh on domestic sentiment.

As long as the index picks up from -9 to -8 as expected this should offer the GBP/AUD exchange rate a boost, in spite of sentiment still remaining in negative territory.

However, if the index fails to show any improvement on the month the Pound may come under renewed pressure.

With the UK economy still reliant on higher levels of consumer spending and activity to shore up growth, given the prominent role of the service sector, any deterioration in sentiment could dent GBP exchange rates.

Any fresh escalation in tensions between the UK and EU could also put a significant dampener on the GBP/AUD exchange rate in the days ahead, pushing it away from its monthly highs.