Consumer Confidence Slide Drags Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Lower
As the GfK consumer confidence index fell short of forecast, sliding from -10 to -13 in June, this dragged the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to a fresh multi-month low.
This latest decline in sentiment suggests that the ongoing Brexit-based uncertainty and political jitters are weighing heavily on the minds of consumers, limiting the potential for future spending.
Given that higher levels of consumer spending have helped to shore up economic growth in recent years any evidence pointing towards a slowdown weighs heavily on Pound Sterling (GBP).
Growing anxiety over the Conservative leadership contest also dragged on GBP exchange rates ahead of the weekend, with markets increasingly concerned by the prospect of a Boris Johnson victory.
With Johnson refusing to rule out the possibility of proroguing Parliament in order to force through a no-deal Brexit investors maintained a naturally wary view of the Pound.
Private Sector Credit Dip Fails to Dent Australian Dollar (AUD)
Although May’s Australian private sector credit data also disappointed expectations this was not enough to drag the Australian Dollar (AUD) down on Friday.
The antipodean currency instead benefitted from persistent hopes that the US and China could see a breakthrough in trade relations at the G20 summit.
Ahead of the scheduled Sunday meeting between the two sides markets are optimistic that some form of progress could be on the table.
However, this leaves AUD exchange rates vulnerable if the talks fail to yield any meaningful improvement in trade relations between the US and China.
As long as the current trade tariffs look set to remain in place, and the threat of further escalation continues to hang over the global outlook, support for the Australian Dollar could swiftly fade.
Even so, if US data continues to disappoint and raises the odds of the Federal Reserve cutting interest rates more than once before the end of the year this could help to limit the downside pressure on AUD exchange rates.
Pound Sterling (GBP) Vulnerable to Fresh UK PMI Weakness
Further weakness may be in store for the GBP/AUD exchange rate next week with the release of the latest set of UK PMIs.
After May’s underwhelming performance forecasts are pointing towards a recovery for the manufacturing sector, however.
If the manufacturing PMI rebounds from 49.4 to 52.0 as anticipated this could see the Pound making solid gains on Monday morning.
Even so, a stronger showing from the manufacturing and construction sectors could easily be overshadowed by any deterioration in the services PMI.
Markets expect to see the index soften from 51 to 50.6 in June, suggesting a continued loss of momentum within the service sector.
If the PMI continues to slide closer to a state of contraction this could weigh heavily on the GBP/AUD exchange rate, given that the service sector remains the primary growth engine of the UK economy.