Data had provided support to both currencies on Thursday, but it was the pound that proved dominant, with the GBP/AUD exchange rate rising 1.2 per cent after unexpectedly-strong retail sales figures.
Retail sales increased 2 per cent on the month in April – double the forecast pace – while year-on-year sales rose 4.5 per cent against predictions of a 2.6 per cent gain.
This helped to allay fears that surging consumer prices were dampening household spending, which would see activity in the UK’s vital service sector slow even further.
Although the Australian dollar had received a boost from early morning labour market figures, thanks to a 37,400 increase in employment and surprise drop in unemployment from 5.9 per cent to 5.7 per cent, the pre-dawn advance had run out of steam by the time UK data was released.
The pound then quickly erased much of its gains thanks to the ‘flash crash’ that occurred just after the UK trading session closed.
Analysts are unsure what caused the crash – which was lower in magnitude than the one in October which drove the pound to a 31-year low – but suspect it may have been caused by automatic trading or a reaction to the launch of the Conservative Party election manifesto.
GBP/AUD lost half a cent and is now edging lower to around AU$ 1.744 as overseas commodity and political developments continue to provide support for the Australian dollar.
However, transient as it may prove to be, Chinese steel prices are climbing sharply as supply tightens.
The government is currently in the midst of a major crackdown on producers who don’t meet emissions standards, which is temporarily closing mills who are found in violation.
This has caused steel stocks to near-halve from their 10-month peak reached in February, pushing up the price of key steelmaking ingredients such as iron ore.
Additionally, political jitters in the US continue to make USD an unappealing asset, driving up commodity indices; the Bloomberg Commodity Index is currently 0.5 per cent higher, which is furthering the appeal of the commodity-correlated AUD.
Markets continue to be unsettled by the latest scandal surrounding the White House, with a statement from former FBI Director James Comey stating that Trump never tried to pressure him to drop investigations into Michael Flynn failing to ease tensions.
On top of this, it has been revealed that the Obamacare replacement bill that finally scraped its way through Congress two weeks ago has still not been sent to the Senate for approval, which could mean the legislation must be voted on again in the lower house.
This further highlights the difficulty President Donald Trump may have in securing support for his massive tax and spending reforms – the two things that have been keeping the US dollar in high demand despite the numerous controversies that have rocked the White House since Trump’s election.
All this is proving favourable for the Australian dollar and, thanks to a lack of any other data, is preventing the pound from notching up gains.