The UK Pound to Australian Dollar, after rising to an almost four-month best, dipped heading into the weekend with losses extending into Monday. At the time of writing, Sterling was last seen trading at A$1.83749, down 0.25% on the day.
While Juncker’s optimism fuelled GBP gains earlier in the week, a report by the Financial Times which said that PM Johnson had told colleagues he had little expectation of being able to reach “legally operable” terms on the Irish backstop sparked a fresh round of selling in the Pound. Brexit remains in focus moving forward with GBP exchange rates likely to be headline driven.
For the Aussie, improvements in global sentiment were lending support following positive reports around US-China trade talks.
“We’ve got a couple of headlines insisting that the trade talks are on track,” wrote Westpac currency strategist Sean Callow, adding “Having gone into the weekend in a fairly nervous and risk-off fashion, weekend news has provided a little bit of comfort and helped the Aussie to recover a small amount of lost ground.”
The latest AU PMIs were mixed with the manufacturing PMI falling into contraction territory (49.4) while the service sector PMI rebounded into positive territory at 52.5.
Bout of Brexit Optimism Fuels Pound Australian Dollar (GBP/AUD) Exchange Rate Gains
Comments from European Commission President Jean-Claude Juncker helped the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate extend its gains ahead of the weekend.
As Juncker indicated that a deal is still possible markets saw an increased sense of optimism, pushing the Pound higher against many of its rivals.
In spite of the recent lack of progress towards a deal Juncker’s comments still encouraged investors to adopt a more positive view on Friday, even though little time now remains for a deal to emerge.
Support for the Australian Dollar, meanwhile, remained limited thanks to increasing bets on the prospect of further Federal Reserve interest rate cuts.
Australian Dollar (AUD) Exchange Rates Look to Capitalise on Manufacturing and Services PMIs
The mood of AUD exchange rates could pick up on Monday, however, if the latest set of Australian manufacturing and services PMIs show signs of improvement.
Reserve Bank of Australia (RBA) interest rate cut.
On the other hand, if September’s services PMI slips further into contraction territory this is likely to expose the Australian Dollar to a fresh downtrend.
While the service sector is not the main growth engine of the Australian economy any signs of weakness here could still weigh heavily on confidence in the third quarter outlook.
Pound Sterling (GBP) Vulnerable to Weakening Industrial Trends
September’s CBI industrial trends orders index may drag on the GBP/AUD exchange rate at the start of the week, though.
As forecasts point towards the index falling from -13 to -23 in the space of a month this could encourage anxiety over the outlook of the manufacturing sector.
With the manufacturing PMI having remained in contraction territory during the third quarter any additional evidence of a slowdown could weigh heavily on GBP exchange rates.
If industrial orders show signs of picking up on the month, however, this may offer the Pound a fresh rallying point against its rivals.
Narrowing UK Budget Surplus Forecast to Diminish Pound Sterling (GBP) Exchange Rate Support
August’s public sector net borrowing figure could provoke further volatility for GBP exchange rates, meanwhile.
If the budget surplus narrows sharply as forecast, or even falls into a state of deficit, the appeal of the Pound is likely to diminish.
Fresh evidence of the UK’s weakening financial position ahead of the Brexit deadline would give investors fresh incentive to sell out of the Pound, dragging GBP exchange rates lower across the board.
Unless the borrowing figures indicate a lower level of new government debt the GBP/AUD exchange rate looks set to come under renewed pressure in the week ahead.