GBPAUD bounced off the base of its long-term upward channel, supported by strong UK economic data and widespread aussie weakness. This resulted in a strong rally in GBPAUD and the pair is now flirting with a resistance zone around 1.9500. A break here could be enough to push the pair to an all-important psychological resistance zone around 2.0000
However, some stronger than expected Chinese and Australian economic data today has resulted in a slight pullback in GBPAUD as the aussie rallies; a rally supported by thin trading conditions. China’s official Manufacturing PMI jumped to 50.1 in March, braking back over the important 50 level which separates expansion and contraction, from 49.9 in February. This was a stronger reading than the market was expecting (expected 49.7), thus it added fuel to a rally in AUD that was sparked by better than expected Australian economic data.
Building approvals in Australia fell 3.2% in February, but this was better than an expected 4.0% fall. Also, year-on-year building approvals rose at their fastest pace since August at 14.3%. While building approvals numbers can sometimes be brushed aside by the market, housing data takes on extra significance in Australia these days as policy makers debate the pros and cons of looser monetary policy to support an ailing economy. The stronger the housing market, the less room the RBA has to cut interest rates as it risks further inflating prices in Sydney and Melbourne.
Tonight, the market will be assessing manufacturing data from the UK. Markit’s UK Manufacturing PMI is expected to improve slightly for the month of March to 54.4, from 54.1 in the prior month. Another strong piece of data from the UK – Q4 GDP beat expectations yesterday at 0.6% q/q (expected 0.5%) – could be enough to push GBPAUD through an important resistance zone around 1.9500, before a possible test of an all-important psychological resistance zone around 2.0000. A failure at 1.9500 may see the pair retest trend line support.