Positive economic headwinds have generally profited the Australian Dollar (AUD) as markets are reassured by new Chinese stock precautions.
Much to the profit of the ‘Aussie’ (AUD), last week saw some significant underperformances on the UK Manufacturing, Construction and Services PMIs. Discouraging traders from throwing in with Sterling (GBP) this succession of decreased figures brought the current state of the domestic economy into question, counter to previous statements from Bank of England (BoE) Governor Mark Carney who had remained confident in the UK’s ability to shrug off any impact from continued Chinese concerns.
As the Australian Services PMI, on the other hand, demonstrated a solid improvement the AUD/GBP exchange rate capitalised on the softened Pound to strike a peak of 0.4621.
Although Sterling would remain relatively weak going into the weekend the ‘Aussie’ was brought down on Friday by US employment data. Speculation over the potential date of an upcoming interest rate hike by the Fed continues to weigh on the antipodean currency, as the prospect of near-term US monetary tightening stands to adversely impact the Australian economy.
While the Change in Non-Farm Payrolls proved to be lower than had been forecast the domestic Unemployment Rate decreased to 5.1%, its lowest level since 2008 and in line with the Fed’s target rate. Inconclusive in either direction, this led traders to retreat a little from the ‘Aussie’ and push the AUD/GBP pairing to 0.4544.
Rather more positively, the Australian Construction PMI for August also posted a substantial rise as the industry entered a state of expansion for the first time in ten months. While this did initially bolster the AUD/GBP conversion rate the effect was tempered by the Shanghai index reopening to further losses, driving the markets back towards risk aversion.
Tuesday’s NAB Business Confidence index was less inspiring, as it fell from 4 to just 1, suggesting that the general sentiment within Australia remains relatively pessimistic as fears of a further slowdown or more Yuan (CNY) devaluation weighed on local businesses.
However, as a new ‘circuit breaker’ mechanism was announced for the Chinese stock markets, which would halt trading when the index falls too dramatically, a general round of optimism returned to traders. While the commodity currency has made gains against many of the majors as a result, positioning ahead of upcoming BoE data releases had also buoyed the Pound to consequently drag the AUD/GBP pairing to a weekly-low of 0.4527.
A raft of new Australian data could stand to boost the ‘Aussie’ further this week, with the Westpac Consumer Confidence Survey, Home Loans and domestic employment data all due for release in the coming days. If more strong showings are produced the AUD/GBP currency pair may climb higher, particularly if the current trend of risk appetite continues.
The BoE Rate Decision and 12-month Inflation Forecast will be the primary influences on the Pound, with dovish results fully capable of returning the currency to its previous bearish form. Prior to that UK Manufacturing Production, Industrial Production and Visible Trade Balance numbers may also prove disappointing for Sterling, particularly should the projected trade deficit clock in lower than forecast.
At time of writing the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate is on a strengthening uptrend in the range of 0.4566, while the Pound Sterling to Australian Dollar (GBP/AUD) pairing is falling at 2.1894.
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