AUDGBP Weak After Trade Data Comes in Lower

AUD GBP Steady Above 0.5400 with Melbourne Reopening

The AUDGBP exchange rate is still showing some weakness as trade balance figures came in slightly lower. The data still showed strong export activity, but traders are also concerned about rising virus cases. The Aussie dollar is weaker on tighter restrictions over the latest virus cases down under.

AUDGBP is trading at 0.5425 and may head lower if the UK continues on the reopening path.

Aussie trade data strong but lower than expectations

The Australian May trade balance for goods and services was A$9,681 m, but that was slightly lower than a Reuters poll of A$10,000 m. Exports were strong with 6% gains MoM, while imports came in at 3% higher.

The country’s exports to China have helped the economy weather the worst of the pandemic with high  demand seen for iron ore, whilst the commodity traded at record levels.

The Australian dollar is under pressure after the government announced a dramatic cut in the number of people entering the country, as it seeks to contain coronavirus clusters that forced major cities into lockdown.

The country is seeing almost half of its citizens under stay-at-home orders, with Prime Minister Scott Morrison saying that quotas for overseas arrivals would be cut by around 50% to prevent further outbreaks. Under a “zero Covid” strategy, only 6,000 people are allowed to enter Australia on commercial flights each week and they must undergo a mandatory two-week hotel quarantine.

“This is a difficult time when people are dealing with restriction,” Mr Morrison said. “There is still quite a journey ahead of us.”

There is growing anger over the snap lockdowns and the slow rollout of the vaccine which has been dubbed a “stroll out”.

Inflation still seen as transitory at BoE

The Bank of England’s Governor Andrew Bailey said on Thursday it was important for markets not to over-react to a rise in inflation that was likely to prove temporary as the UK recovers from its own lockdowns.

Repeating the bank’s message from the June policy meeting last week, Bailey said the bank’s reasons for why inflation would not prove to be persistent were “well-founded”.

“It is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions,” he said at the annual Mansion House speech.

He added that the BoE would watch carefully for signs of more persistent inflation pressure.

“And if we see those signs, we are prepared to respond with the tools of monetary policy,” he said.

Traders are seeing higher inflation as a risk that interest rates will move higher more quickly and stimulus will be unwound. The governor’s comments didn’t support that view and the pound sold off after the latest speech.

The AUD to GBP exchange rate saw lows at 0.5400 in June and is hovering near those levels.