GBP/AUD Continues 7 Month High on Weak Australian Iron Ore Prices

The Australian Dollar is under pressure on Thursday, paring some gains from the previous session. On Wednesday, the Pound Australian exchange rate settled -1% lower at 1.8552 amid growing concerns that the Bank of England will adopt negative interest rates.

At 09:15 UTC, GBP/AUD is trading +0.3% at 1.8601, at the top end of the daily traded range following better than expected UK PMI data and growing US – Chinese tensions.

UK Composite PMI Beats Forecasts

The UK’s economic contraction slowed slightly in May, as lockdown measures eased only very slightly. IHS Markit’s purchasing managers index for the entire economy rose to 27.8 in May, up from 13.4 in April, as a preliminary estimate. This is still one of the lowest readings in the survey’s two decade history as the UK economy remains firmly in a downturn.

The survey showed that business expectations are improving, however many firms remain closed due to the lockdown measures. Businesses also expect demand to take a long time to recover.

The data points to a GDP contraction of 12% in 2020, whilst the quarterly rate of contraction is expected to be around -20%.

Trade War To Spill Into Iron Ore?

The Australian Dollar is under pressure on Thursday amid rising tensions between Australia and its principal trading partner, China. Relations have deteriorated between the two countries after Australia called for an independent probe into the origins and spread of coronavirus.

80% tariffs were applied to Australian barely exports earlier in the week and China also stopped buying meat from some Australian abattoirs.

Fears are growing that the trade war could spill over to include Australia’s most valuable export – iron ore after Chinese customs officials imposing new inspection procedures from next month. These could potentially be used to block or hold up Australian shipments.

The move comes after the Chinese Communist party-run Global Times newspaper warned that Australian iron ore imports could be damaged by deteriorating Australian – Sino relations. China is the largest importer of Australian iron ore. A reduction in imports could have a negative impact on the Australian economy and the Aussie Dollar.


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