Better-Than-Forecast Westpac Leading Index Supports Pound Australian Dollar (GBP/AUD) Exchange Rate
After March’s Westpac leading index saw a smaller decline on the month than forecast the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate lost its footing.
While signs still point towards the Australian economy coming under pressure over the course of the first quarter, thanks to Covid-19, this was not enough to drag the Australian Dollar (AUD) lower.
Instead, AUD exchange rates benefitted from a general improvement in market risk appetite as oil prices staged a solid rally.
Although the risk of a global oversupply glut lingers this failed to prevent oil prices leaping higher once again on Wednesday, encouraging investors to pile back into risk-sensitive assets.
Even so, Pound Sterling (GBP) still found some support against its rivals as the headline UK consumer price index softened in line with forecasts.
UK Service Sector Slump to Drive Pound into Fresh Downtrend
The GBP/AUD exchange rate could come under greater pressure on Thursday, however, on the back of April’s UK manufacturing and services PMIs.
Forecasts point towards fresh monthly contractions for both the manufacturing and service sectors, highlighting the negative impact of the current lockdown on the UK economy.
The mood towards the Pound could sour significantly if the service sector weakens as far as forecast, with investors expecting to see the PMI plunge from 34.5 to 29.
As long as the PMI sinks further below the neutral baseline of 50 the risk of a largest gross domestic product decline looks set to rise.
Unless the sector can demonstrate signs of resilience in the face of the ongoing Covid-19 disruption the GBP/AUD exchange rate could slump sharply.
Even if the manufacturing sector shows a better performance on the month, though, this may not be enough to outweigh another disappointing services PMI at this stage.
Global Slowdown Fears Forecast to Limit Australian Dollar Upside
Lingering worries over the global economic outlook may see the Australian Dollar struggle to hold onto an uptrend ahead of the weekend, meanwhile.
Any fresh resurgence in market risk aversion could easily knock AUD exchange rates, reversing their recent gains.
April’s set of Australian PMIs may also put a dampener on the Australian Dollar, with economic activity appearing on course for another month of weakness.
Fresh signs that the Australian economy faces a potential recession in the first half of 2020 could help to shore up the GBP/AUD exchange rate.
On the other hand, any evidence of activity recovering at the start of the second quarter may help to put a fresh floor under the Australian Dollar.