UK Services Index Beat Expectations but the Australian Dollar to Pound Exchange Rate Fluctuated
Despite a lack of notably impressive Australian data this year so far, the Australian Dollar to Pound (AUD/GBP) exchange rate has recovered from its Tuesday fall and Britain’s decent data is doing little to make the Pound (GBP) more appealing.
Markit’s UK services PMI for December was forecast to improve from 53.8 to 54.1, but beat expectations and came in at 54.2.
Analysts noted the data indicated that Britain’s services sector had been more resilient than expected towards the end of the year, despite concerns that slower wage growth and spiking inflation had dented consumer activity.
However, the Market report also highlighted that there was rising uncertainty in the services outlook, amid rising hesitance to spend big during the Brexit process.
Markit’s services data followed manufacturing and construction data earlier in the week, which both fell short of expectations. Overall, Pound investors have had little reason to buy the currency after its December losses.
Australian Dollar (AUD) Exchange Rates Boosted by Iron Ore and Other Commodities
Despite a lack of particularly impressive Australian data in recent sessions, the Australian Dollar (AUD) has been able to hold its ground against Sterling.
Prices of iron ore, Australia’s most lucrative commodity, have risen since markets opened for the year and this has boosted demand for the iron ore-correlated ‘Aussie’.
Australian Dollar trade has also been boosted by general strength in commodity trade, with prices of oil seeing strong performance this week too.
In terms of data, the Australian Dollar has also been supported by a stronger than expected Chinese manufacturing PMI from Caixin. As China is Australia’s biggest trade partner, this further bolstered the upbeat market mood on iron ore and the Australian Dollar.
Australia’s AiG manufacturing PMI slipped from 57.3 to 56.2 in December, while the services PMI rose from 51.7 to 52. These slight improvements helped the Australian Dollar to remain sturdy.
Brexit News Forecast to Influence Australian Dollar to Pound (AUD/GBP) Movement
Amid a lack of highly influential UK datasets due for publication over the next week, Pound trade is more likely to be driven by any Brexit developments as UK Parliament reconvenes following the winter recess.
The Brexit process is likely to be the primary cause of Pound movement once again throughout 2018.
While the second phase of negotiations is not expected to formally begin until March 2018, markets will still be watching UK Prime Minister Theresa May and her cabinet carefully for signs on what angle the UK government may take on trade talks.
If the UK government looks more likely to fight for a softer Brexit, the Pound outlook could improve. A hard Brexit being more likely could cause Sterling to see more long-term losses.
The Australian Dollar, on the other hand, could be influenced by upcoming Australian business confidence survey data, due Wednesday, and a November retail sales report due Thursday.
If prices of key commodities like iron ore and oil remain strong, this could keep the Australian Dollar appealing too.