Overnight the Australian Dollar advanced versus the British Pound as improved trader risk-appetite supported demand for the high-yielding South Pacific asset. British ecostats produced positive results but ‘Brexit’ uncertainty continues to outweigh domestic data results.
After yesterday’s Chinese trade data showed that Yuan-based imports significantly bettered expectations, hopes that this signifies improvement in the Far East nation’s economy supported risk-appetite.
‘Recovering commodity prices and relatively resilient domestic demand are driving a recovery in import growth,’ Julian Evans-Pritchard of Capital Economics said in a note.
As a high-yielding, risk-correlated asset the Australian Dollar strengthened in response to market sentiment. Even mostly disappointing domestic ecostats have not been enough to offset ‘Aussie’ (AUD) gains.
Of particular disappointment, however, was April’s Investment Lending which contracted by 5.0%.
Moody’s analysts fear that increased household debt could jeopardise the health of Australia’s banks, stating;
It was ‘credit negative for Australian banks, because these factors raise the banks’ sensitivity to downside risk in the housing market, and can lead to potential second-order impacts on broader economic activity.’
British ecostats produced positive results overnight although, as mentioned above, EU referendum uncertainty continues to drive volatility.
However, Industrial production and Manufacturing Production bettered expectations in April on both a monthly and annual basis respectively.
‘If this marks the beginning of stabilization or modest growth in the UK industrial sector, that would suggest some potential upside risk to gross domestic product growth in the second half of the year if the UK remains in the EU,’ said Kallum Pickering, London-based economist at Berenberg Bank.
Another positive UK ecostat was May’s NIESR Gross Domestic Product Estimate which came in at 0.5% with the previous figure upwardly revised to 0.4%. James Warren, a research fellow at NIESR said:
‘A rebound of production sector output has supported reasonable GDP growth in the three months to May. Our estimates imply that growth so far in 2016 has remained relatively subdued … there remain specific uncertainties around the near-term outlook for the UK economy, most notably the outcome of the impending referendum on the UK’s membership of the EU.’
Given the lack of Australian ecostats today, the Australian Dollar is likely to see movement in response to China’s inflation data for May. The Reserve Bank of New Zealand (RBNZ) interest rate decision may also be impactful on the ‘Aussie’ depending on the outcome.
In terms of UK data likely to impact the AUD/GBP exchange rate, May’s RICS House Price Balance and Trade Balance reports may cause movement. However, there is every chance that Sterling will continue the trend of volatility linked to referendum developments rather than domestic ecostats.
Overnight the Australian Dollar to Pound Sterling (AUD/GBP) exchange rate was trending within the range of 0.5107 to 0.5141.
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