GBP/AUD Breaking Lower, Outlook seen Deteriorating
Pound Sterling is seen recovering against most its competitors at the start of the new week having endured a torrid bout of selling pressure at the close of the previous week.
The GBP/AUD exchange rate has recovered to 1.7264 at the time of writing having gone as low as 1.7169 last week.
Confidence in the currency was shaken by a poll confirming the Conservative party's lead over Labour had shrunk to only 5.0% in a YouGov poll.
Meanwhile, a rebound in the price of oil ahead of OPEC talks on Thursday, June 1, has helped commodity currencies such as the Australian Dollar.
Concerning the outlook, our studies show that GBP/AUD has been pulling back since reaching the 1.7665 high.
The move lower looked like just a correction at first - a classic a-b-c correction - but after the steep decline on Friday, it became clear it was developing into something more, perhaps a new mini-down trend with further to go.
A move below 1.7158 would probably lead to a continuation down to the next target at 1.7025 which sits just above the big round number of 1.70 and the monthly pivot at 1.7015.
We expect buying interest in Sterling to pickup at these levels.
Data for the Australian Dollar
The main release for the Australian Dollar is April Retail Sales out on Thursday, June 01 at 2.30 BST.
Recent lower-than-expected Consumer Confidence data warns of downside risks to retail sales.
The market is expecting a rise of 0.3% from the -0.1% previously.
The other main release which could potentially impact on AUD is Chinese data, as Chinese Manufacturing (and Services) PMI are out at 02.00 on Wednesday, May 31 and at 02.45 on Thursday 1 Caixin PMI is forecast to decline to 50.1 from 50.3 – but only a break below the key 50 level which differentiates growth from contraction would be significant.
The recent news that credit rating agency Moody’s downgraded Chinese debt a notch has weighed on the outlook for Australia as a key trading neighbour and the Aussie Dollar, so more bad news from China could also have a negative effect.
Data, Events to Watch for the Pound
UK data picks up towards the end of the week as the new month gets underway.
Manufacturing PMI for May is out at 9.30 BST on Thursday, and Construction PMI, out at 9.30 on Friday.
Manufacturing activity is expected to fall to 56.5 from 57.3 – only a deeper decline, however, would be market moving.
Last month Manufacturing PMI reached a 3-year high on the back of a surge in New Orders so the overall view supports a shallower decline if anything.
“We look for PMI to hold onto most of last month’s gains with just a small pull-back 57.0,” said Canadian investment bank TD Securities.
A similar marginal decline to 52.7 from 53.1 is foreseen in construction activity in May, out on Friday, June 2.
House Prices are also out at 7.00 on Thursday.
Of probably more import in terms of sterling’s fluctuations are poll results for the up-and-coming June elections.
The Pound weakened last week after Theresa May’s lead was cut to only 7% from 19%, as the possibility of her having a powerful majority declined.
We watch upcoming polls with interest for signs that the Conservatives have stabilised.
Recall Sterling move sharply higher when May called the election as markets assumed she would be able to secure a stronger majority in parliament that would allow her a strong hand in upcoming Brexit negotiations.
It also provides the prospect for political stability over coming years in which a decent transitional period for Britain's exit from the EU is possible.
A weak government throws all these assumptions into doubt.
