AUD/GBP Exchange Rate Strengthens after China Intervenes in Equity Markets


Fifty Pounds Sterling (GBP)

‘Aussie’ (AUD) Garners Support as Market Sentiment Improves

As has been the case for a very long period now, the People’s Bank of China (PBoC) used state-backed funds to shore up equities.

Whilst China’s economic difficulties are by no means positive for Australia, intervention from China’s central bank and government supports improved market sentiment. As a high-yielding, risk-correlated asset the ‘Aussie’ benefits from a risk-on environment.

The prospect of long-term delays to a Federal Reserve benchmark interest rate hike also supported demand for the ‘Aussie’ during Friday’s European session. Mixed-results from US economic data hasn’t help the cause for USD bulls.

Although the Oceanic currency made robust gains versus most of its major peers, domestic data wasn’t anything to shout home about. January’s Retail Sales was forecast to advance by 0.4% on the month, but actually only grew by 0.3%. This highlights the fact that Australia still has some way to go before moving away from mining-led economic growth to a consumption-based economy.

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending in the region of 0.5213 during Friday’s European session.

Weak Services Output Weighs on Sterling Demand

During Friday’s European session the British Pound struggled versus most of its currency rivals as the previous days weak domestic data continued to plague investor confidence.

The UK Services PMI for February showed output growth slowed well beyond expectations. This is detrimental to the UK’s economic outlook because the services sector is the main driver of British growth, encompassing the single largest portion of gross domestic product.

After the services report was released, Markit economist Chris Williamson said; ‘The extent of the slowdown will be a shock to policymakers and surely puts to bed any talk of the Bank of England raising interest rates. The focus will instead increasingly shift to whether policymakers may soon need to dig deeper into their toolbox to introduce new measures.’

Political uncertainty continues to be a dampener on demand for the Pound. Since the announcement of the EU referendum date, June 23rd, Sterling has softened considerably. In fact, thus far in 2016 the Pound has shed 10% in value.

The British asset did enjoy a brief respite as corrective trading caused the Pound to rise after the depreciation was considered overdone. However, corrective trading ended on Friday with the dismal services output leaving investors underwhelmed.

AUD/GBP Exchange Rate Forecast: Market Sentiment to Dictate Movement

Although there will be a number of domestic data publications next week with the potential to cause changes for both the Pound and the Australian Dollar, volatility is most likely to be dictated by market sentiment.

If China continues to intervene in equity markets the Australian Dollar will advance.

The Pound Sterling is unlikely to make any significant gains now that corrective trading has abated. EU referendum uncertainty and weak domestic data is likely to continue to weigh on demand for the British asset.

The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending within the range of 0.5178 to 0.5244 during Friday’s European session.

About

Ollie relocated to Cornwall after obtaining his degree from Portsmouth University. He works with one of the UK’s largest currency brokers, studying the currency market and writing up-to-the-minute updates on market movements for a variety of publications, both in print and online. - View all posts by Ollie Carpenter


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