Chinese Stock Market Rout Deepens to Undermine Australian Dollar (AUD) Demand
For the second time in 2016 Chinese stock markets were closed early by a 7% drop in share values, after just half an hour of trading. Naturally this latest sign of weakness within the world’s second largest economy prompted a fresh round of risk aversion as commodity prices slipped lower. Consequently, in spite of a better-than-expected Australian Trade Balance, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has remained on an uptrend in the region of 2.0752.
Earlier…
Sliding commodity prices have helped prevent the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate from weakening in the wake of a disappointing UK Services PMI today.
UK Construction PMI Bettered Forecast to Bolster GBP/AUD Exchange Rate
Traders were largely encouraged yesterday as the latest UK Construction PMI came in significantly higher-than-forecast, jumping from 55.3 to 57.8. This stronger performance indicated that the construction industry had continued to expand at an accelerating rate in December, likely benefitting as a result of the milder temperatures. While construction is one of the smaller contributors to the nation’s GDP this bullish result nevertheless pushed the Pound (GBP) higher against rivals.
The Australian Dollar (AUD), meanwhile, struggled to rally on the back of the news that Beijing had intervened to prop up the Chinese stock markets. Although base metal prices saw some good gains as a result of the move the ‘Aussie’ was soon returned to a downtrend as the latest domestic Services PMI proved discouraging. Slipping from 48.2 to 46.3, plunging the sector further into contraction territory, this figure does not appear to bode well for the outlook of the Australian economy.
Pound (GBP) Benefits from Australian Dollar (AUD) Weakness after UK Services PMI Disappoints
Markets returned to a more volatile state overnight, however, as the Chinese Services PMI showed an almost complete stagnation in growth. Given China’s expressed desire to shift towards a service-based economy this did little to improve the jittery mood of investors, particularly as the Yuan (CNY) consequently dropped to a five-year low. As North Korea also announced its supposedly successful testing of a hydrogen bomb a renewed surge of risk aversion sent the antipodean currency on a strong downtrend.
Hopes for an improved UK Services PMI were dashed today as the latest figure clocked in at 55.5, down from 55.9, to provide more evidence that the domestic economy is still relatively fragile. With the fourth quarter GDP likely to take a hit from this disappointing performance and with the Bank of England (BoE) expected to remain more dovish on monetary policy over the coming months Sterling has seen a decline in demand. Nevertheless, the comparative softness of the ‘Aussie’ has helped the GBP/AUD exchange rate continue to climb.
GBP/AUD Exchange Rate Forecast: Narrowed Australian Trade Deficit May Spark ‘Aussie’ Rally
Should tomorrow’s Australian Trade Balance show a greater narrowing of the nation’s trade deficit the ‘Aussie’ may be able to recover some of its recent losses. However, as the general atmosphere of risk aversion looks set to persist even a strong result may lack sufficient clout to bolster the commodity-correlated currency.
Current GBP, AUD Exchange Rates
At time of writing, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate was making gains around 2.0703, while the Australian Dollar to Pound Sterling (AUD/GBP) pairing was slumped in the region of 0.4829.
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