#PanamaPapers’ Risk-Off Sentiment Fails to Hinder AUD/GBP


Pound Sterling (GBP)The Australian Dollar to Pound Sterling (AUD/GBP) exchange rate has begun to climb since Tuesday after a brief risk-off inspired downtrend – optimism towards China’s growth and the commodity bloc have kept the ‘Aussie’ strong.

Caixin China PMI Scores Influence Continued Confidence in the Australian Dollar (AUD)

Despite risk-off sentiment being spurred on by this week’s ‘Panama Papers’ scandal; a leak bearing alleged details of tax evasion committed by various members of the global elite, the recently strong ‘Aussie’ has maintained strength against the Pound due to other global factors.

AUD/GBP has climbed by over 80 pips since Tuesday’s session, nearing a new weekly high and recovering almost all of the losses made since markets opened for the week. The pair is up almost 0.7% from Wednesday morning’s 0.5329 and at the time of writing trends in the region of 0.5365.

One of the main reasons for the Australian Dollar’s uptrend is more optimistic news from Australia’s biggest trade partner. Chinese PMI released by Caixin on Wednesday indicated growth across the board, with the Composite figure printing at 51.3, above February’s contraction of 49.4.

According to Caixin’s press release, this score is ‘the highest reading in 11 months’ and is likely to have restored confidence in the continued strength of China’s economy.

At the start of 2016 there were significant concerns that the slowdown in China had the potential to threaten the stability of the global economy. PMI releases suggesting otherwise is likely to inject confidence in investors of China and its trade partners – like Australia.

In commodity news, iron ore shipments have experienced another strong month, with Australia’s Port Hedland iron ore exports breaking records and shipping 39.53m tonnes of iron throughout March. China received 32.6m tonnes of this export.

GBP Sinks on ‘Panama Papers’ Arguments and Underwhelming UK PMI

Following Conservative Government infighting over the 2016 Budget two weeks ago, the UK Steel industry crisis hitting headlines last week, and now revelations that Prime Minister David Cameron’s father allegedly invested in ‘tax havens’ as detailed in the ‘Panama Papers’ leak, the ecopolitical situation in Britain is certainly strained.

The Prime Minister has gone on record throughout Tuesday and Wednesday claiming that he and his immediate family are not benefitting from offshore money now, nor will they in future.

Some members of the UK government, including key members of the Labour party, have suggested that Cameron’s late father Ian Cameron may have set up an investment fund for the Cameron family. Labour Leader Jeremy Corbyn has asked that Cameron publically publish his own tax returns.

The UK government associations made in the documents has dominated investor concerns regardless of HMRC’s Monday claims that evaded tax would be pursued and returned to Britain.

Positive UK Services PMI was also unable to help the Pound buoy against the strengthening ‘Aussie’. The higher-than-expected print of 53.7 was offset by disappointment in the Composite PMI release.

While the Composite print scored slightly above forecasts – at 53.6 – the data also confirmed that in the first quarter of 2016, British businesses grew at their slowest pace since January 2013.

AUD/GBP Exchange Rate Forecast: Risk-Sentiment Could Soar Tomorrow on Fed Influence

Data for the coming day is quiet for Australia and the UK. Later this morning, the Australian performance of construction index score for March will be released.

As the building situation in Australia is believed to be improving, a score lower than February’s 46.1 could damage ‘Aussie’ sentiment.

Most AUD/GBP movements today are more likely to be influenced by commodity or political headlines however, particularly in the scenario that developments are made in the UK’s ongoing steel industry crisis.

Indian steel production company Tata Steel are pulling out of UK operations due to an unreliable Pound and poor trade conditions. If a buyer for the business is not found, over 10,000 jobs could be affected.

Perhaps most importantly, Federal Reserve Chairwoman Janet Yellen is due to speak in New York tomorrow morning. If her previously dovish attitude towards United States’ key rates remains, a risk-on attitude could be inspired – regardless of ‘Panama Papers’ fears.

At the time of writing, the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate trends around 0.5365 while the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate trends in the region of 1.8620.

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