UK Pound Aussie Dollar Exchange Rate Gains on Low Australian PMIs

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UK Pound Aussie Dollar Exchange Rate Gains on Low Australian PMIs

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SYDNEY, Australia – UK Pound Australian dollar exchange rate gains following a contract in Australia’s latest Purchasing Manager’s Index (PMI) data.

The underwhelming Australian PMIs for the manufacturing and services sector have pushed significant gains for the UK pound sterling against the Australian dollar before the weekend starts.

In February, both sectors have demonstrated a contraction. This move has fueled a new set of anxieties in the market concerning the view of the economy in Australia, especially in the current issues that sparked further worries about the impact of the spreading of Covid-19.

The weakness is predicted to trigger the Reserve Bank of Australia (RBA) to take on a more dovish point of view in the months ahead. With this, there is also an increase in the odds that the Australian central bank may push for an interest rate cut in the coming months.

Ahead of the weekend, the market was mostly adopting a more cautious view, which led to the Australian dollar in a bind. The currency was left to trade much lower across the chart on Friday, left to its own devices with the lack of any backing of any risk appetite.

With the still ongoing pressures about the Covid-2019, business worldwide hasn’t fully recovered yet. There is also an increasing worry about the overall standing of the economy in China. This anxiety has further left pressure on the exchange rates of the Australian currency. However, the effects of the worries in the Chinese economy affected the AUD wasn’t surprising, given that the Australian currency has long since acted as a market substitute for the second-largest economy in the world following the United States.

Meanwhile, the pound sterling received much of its support from the surprise manufacturing growth in the United Kingdom, pushing the UK pound exchange rates much higher on Friday.

The UK manufacturing PMI came out better than expected. Market forecasts had indicated the manufacturing and services sector in the UK to go down towards a contraction for February. However, the index climbed instead. From the forecasted 50 points, it was able to go up to reach 51.9 points according to the latest PMI records.

The latest British PMI figures revealed the fastest growth in the manufacturing output of the country since April 2019.

The solid UK PMI figures coupled with another strong monthly performance has given investors the risk appetite to buy back the sterling as the possibility of a weak gross domestic product (GDP) in the first quarter starts to disappear.

On the other hand, the Commonwealth Bank Composite PMI recorded for Australia showed a decline for February 2020. From the 50.2 PMI in January 2020, it dropped to 48.3 this month according to the preliminary estimate.

The latest reading in the country’s PMI data suggests the steepest contraction in Australia’s private sector since May 2016. This decline came amid the coronavirus outbreak in China affecting Australian businesses and economy, adverse weather conditions, and a more subdued client demand.

Figures for new orders has also gone down, going back to the contraction territory and is diminishing at the sharpest rate in history. The steep decline in the data was largely weighed down by the decreasing sales figures in both the manufacturing and services sectors.

Also, the outstanding workloads have gone down, which caused businesses and companies to become more cautious about hiring staff. Both the manufacturing and services providers also reduced headcounts because of this.

On the price front, output prices increased at a very modest pace, while the input cost inflation went down to reach a record low after ten months.

Lastly, the latest Australian PMI data estimates suggest a weakened sentiment in the market, dropping to its lowest level since October last year. It came amid the increasing concerns in the market relating to muted market conditions, both in the local and international scene, as well as the impact of the spreading coronavirus in China and other neighboring countries.

Back on the currency pair, the GBP/AUD exchange rate is looking towards a major struggle ahead as the anxiety in the market picks up ahead of the trade negotiations between the UK and EU.

The two parties continue to look significantly at odds regarding some critical issues on the lingering threats that could drag the British pound down if the transition period ends without a new trade agreement in place.

A CBI report on Tuesday has suggested that the GBP exchange rates may be weighed on by retail sales index if there are no signs of an increase in consumer spending.

Meanwhile, the Australian dollar could get a much-needed boost from the rebound posed to happen in the Private Capital Expenditure forecast.

By next week, the market’s sentiment towards the Aussie dollar could bound back if the private capital expenditure reading for Australia for the fourth quarter will show positive results as anticipated.

Previously, in the third quarter, the private capital expenditure in the country has seen a decline of around 0.2%. However, the business markets are hoping and predicting positive growth in the next reading. If the evidence of the growing confidence in the private sector will show in the fourth quarter, the expenditure figures are looking towards positive growth.

Stronger figures of private investment will not only offer the much-needed support for the Australian dollar to bounce back, but it could also stimulate a less pessimistic sentiment towards the overall outlook on the economy of the country. Positive results in the reading could also offer a temporary relief over the worries of a potential interest rate cut from the Australian central bank.

Further, any signal that the economy is the country is picking back up and is having a growing resilience could offer a convenient floor to back up the exchange rates for the Aussie dollar, especially with the reluctance to make another interest rate cut as stated by the central bank governor Philip Lowe.

However, the potential growth for the Australian dollar exchange rates could still be slashed as long as there is still a risk of further disruptions in the country’s economy due to the ongoing issue with the Covid-19 outbreak.

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