Pound Australian Dollar (GBP/AUD) Exchange Rate Slips as Coronavirus Fears Ease

GBP/AUD Exchange Rate Retreats amid Coronavirus Optimism

The Pound to Australian Dollar (GBP/AUD) exchange rate is on the defensive this morning in response to fading concerns over the coronavirus and its impact on the global economy.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9228, down roughly 0.3% from the day’s opening levels.

Australian Dollar (AUD) Climbs in Risk-On Trade

The Australian Dollar (AUD) is trending higher this morning on hopes that the coronavirus outbreak in China won’t be too damaging to the global economy.

In recent days the rate of new infections in China has slowed notably, and while the death toll continues to rise, markets are hopeful that the situation is beginning to stabilise.

The fall in new cases and the re-opening of Chinese factories after the extended Lunar New Year break is also helping to reassure investors that the impact to China’s economy and the knock on effect on global growth won’t be too severe.

Mark Haefele, CIO at UBS Global Wealth Management, suggests:

‘The economic impact of the outbreak should be limited to the first quarter, in our base case.

‘For China, we expect a 100-200bps hit to GDP growth in the first quarter, taking the rate of expansion down to 4-5%. But for 2020 as a whole, we see pent-up demand driving a recovery and expect an impact of around 50bps.’

The Australian Dollar is often used as a proxy for China due to Australia’s close economic ties to the country, so expectations that Chinese GDP will bounce back later in the year is helping to fuel demand for the ‘Aussie’ this morning.

Pound (GBP) Muted after Carney Calls for More Public Spending to Support the UK Economy

Meanwhile, the Pound (GBP) is mostly rangebound in trade this morning as markets digest Mark Carney’s latest comments on monetary policy.

In his last appearance in front of the House of Lords’ economic committee before he steps down as Bank of England (BoE) Governor next month, Carney said he expects interest rates to remain low for the foreseeable future due to factors such as weak productivity and slowing global growth.

Carney also told the committee that it would be up to the government to boost public investment in order to buoy economic growth.

Carney said:

‘The positive of a low interest rate environment is it does add fiscal capacity. so debt servicing costs are expected to be low for a while.

‘This is an environment in which the right infrastructure, the right corporate investment projects make sense and will be necessary in order to ultimately get us out of this situation.’

Carney’s comments will likely be well received by Number 10 as Boris Johnson seeks to increase infrastructure spending, having recently given the go ahead of the controversial HS2 rail project.

GBP/AUD Forecast: Brexit Uncertainty to Keep a Lid on Sterling?

Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate may struggle to find momentum in the latter half of the week as a lull in economic data likely turns market attention back to Brexit.

Markets are growing increasingly concerned by the prospect of a no-deal Brexit at the end of 2020 in response to Boris Johnson’s decision not to seek alignment with the EU, and these fears are likely to cap any upside in Sterling for the foreseeable future.

Meanwhile, if commodity prices continue to pick up, it’s likely we will see demand for the ‘Aussie’ remain buoyed in the second half of the week.

Matthew Andrews

Contact Matthew Andrews