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Pound to Australian Dollar Rate Strengthens, as China Slows

Market CommentaryPound to Australian Dollar Rate Strengthens, as China Slows
Pound to Australian Dollar Rate Strengthens, as China Slows
Pound to Australian Dollar Rate.

If you're planning to transfer money to Australia from the UK, it might interest you to know that the pound to Australian dollar interbank exchange rate has strengthened recently.

To be specific, sterling stands at 1.8385 versus the Australian dollar at present, its highest in close to a week, or since April 25th.

As a result, when you transfer money from Britain to Down Under, you might now get a higher Australian dollar total in your Aussie bank account, compared to a few days ago.

This could be useful information for you, if you're a Brit thinking of emigrating to Australia, or a UK business owner importing goods or services from Australia for your British firm.

Two factors why the pound to Australian dollar interbank exchange rate has risen are, first, because manufacturing output in China, Australia's closest trade partner, has slowed. Second, in the UK, Brexit talks between the Conservatives and Labour have taken a positive turn.

Let's look more closely at these factors that have lifted sterling versus the Australian dollar, which could be useful for your money transfer Down Under.

China's Manufacturing Sector Slows in April

A first factor why the pound to Australian dollar interbank exchange rate has risen is because manufacturing output in China, Australia's closest trade partner, slowed this month, said closely-watched data today.

According to respected economics watchdog Caixin this morning, China's factory output fell to just 50.2 this month. This is below financial market forecasts for 51.0, and close to the 50.0 figure that signals stagnation.

Caixin's downbeat survey of China's manufacturing output follows a similar official poll from China's government earlier this month. This also showed that Chinese factories lost momentum in April, reports financial news source Reuters.

This has weakened the Australian dollar, first because Australia trades vast quantities of goods with China, particularly raw materials like iron ore and coal. So, when China's factories slow, there's less demand for Australia's commodities. In turn, this might weaken Australia's economy too, so this has contributed to lower the value of the Australian dollar.

This has also dragged down the Australian dollar, in part because China is the world's second-largest economy, after the USA. So when China's vast manufacturing sector slows, this bodes ill for global economic growth, especially for countries with close ties to China, like Australia. Thus, this too has helped weigh on the Australian dollar.

Conservative/Labour Brexit Talks Take Upbeat Turn

Meanwhile, another partial explanation why the pound to Australian dollar interbank exchange rate has strengthened is because, in the UK, the Conservative and Labour Parties' Brexit talks have taken a positive turn, it's been reported.

Since the UK was granted its six-month Brexit extension to October 31st recently, the Tories and Labour have been negotiating, to find a version of Brexit that both parties can support, to pass through Parliament.

Today, it's been reported that both sides feel more upbeat about the talks. For example, the de-facto Deputy Prime Minister, David Lidington, has said that he's encouraged by the "need to inject greater urgency" in the talks, according to newspaper The Guardian.

In addition, Labour's Shadow Environment Secretary, Sue Hayman, said that the two sides have had "a really constructive discussion", and that the Conservatives seem "open to moving forward in our direction".

This week, the Conservatives and Labour will discuss the key remaining issues about Brexit, including the Customs Union, Single Market alignment and dynamic alignment of workers’ rights and environmental protections.

Financial markets hopes that the two political parties will soon reach a Brexit agreement, to pass through Parliament, and present to the EU. So this optimism has contributed to lift the value of sterling versus the Australian dollar.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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