GBP/AUD Exchange Rate Dips in Risk-On Trade
The Pound to Australian Dollar (GBP/AUD) exchange rate is trending lower this morning as expectations for Chinese stimulus measures buoys market risk appetite.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9378, down roughly 0.3% from the day’s opening levels.
Australian Dollar (AUD) Buoyed by China Stimulus
The Australian Dollar (AUD) is drifting higher this morning after Beijing signalled it will introduce fresh stimulus measures in an attempt to offset the economic disruption caused by the coronavirus outbreak.
The death toll in China rising past 1700, with more than 70,500 reported cases of infection throughout the country.
-China deaths at 1,770, up 105
-Hubei adds 1,933 new cases
-Taiwan sees first death from virus on Sunday
-China, Hong Kong and Singapore pledge extra fiscal stimulus to counter the economic hit
-U.S. evacuates cruise passengers from Japan https://t.co/vo4EhrAyot
— Bloomberg (@business) February 17, 2020
This has caused major disruption to the world’s second largest economy as the Chinese government attempts to limit the spread of the coronavirus by restricting travel and quarantining millions of citizens.
So the news that China’s government may be ramping up its stimulus measures to counteract this is a welcome relief to markets this morning.
Larry Hu, chief China economist at Macquarie said:
‘The market is largely trading on the expectation of policy easing. At this stage, the most likely policy options are to cut rates and provide targeted easing to impacted companies and areas.’
The China-proxy ‘Aussie’ has particularly benefited from reports of possible stimulus, with hopes that it will help to boost Australian commodity exports, demand of which has tumbled as factories were closed due to the outbreak.
Pound (GBP) Stifled by Brexit Jitters
Meanwhile, the Pound (GBP) is struggling to find support at the start of the week amidst renewed concerns over Brexit.
This comes as France has warned of bitter trade negotiations between the UK-EU.
French foreign minister Jean-Yves Le Drian fears the two sides will ‘rip each other apart’ as they strive for leverage in talks.
Le Drain warned:
‘I think that on trade issues and the mechanism for future relations, which we are going to start on, we are going to rip each other apart.
‘But that is part of negotiations, everyone will defend their own interests.’
While the UK government has stated it wants a deal based on ‘cooperation between sovereign equals’ it remains resistant to accepting EU regulations, something GBP investors fear is likely to prove a major sticking point in negotiations and could lead to a no-deal Brexit at the end of the year.
GBP/AUD Forecast: Slowing UK Wage Growth to Drag on Sterling?
Looking ahead, the Pound to Australian Dollar (GBP/AUD) exchange rate may trend even lower on Tuesday with the publication of the UK’s latest jobs report.
While December’s data is expected to show that the unemployment rate held at a 44-year low at the end of 2019, the accompanying earning’s figures could weaken Sterling sentiment amidst forecasts wage growth will have slowed to just 3%.
In the meantime, the Reserve Bank of Australia (RBA) will publish the minutes from its February policy meeting overnight.
AUD investors will be looking for more insight into the RBA’s outlook on monetary policy, with the ‘Aussie’ potentially weakening if policymakers appear wary of the impact of the coronavirus and bushfires on domestic growth.