Pound to Australian Dollar Exchange Rate Weak despite Rising Coronavirus Fears
The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is falling this week. This is despite the Australian Dollar (AUD) being perhaps the major currency most strongly correlated to developments in the outbreak of coronavirus Covid-19.
Since GBP/AUD opened this week at the interbank level of 1.97, the pair has been tumbling. This has been due to the Pound’s (GBP) weakness and ‘Aussie’ gains.
Yesterday, GBP/AUD touched on a low of 1.9319, the lowest level for the pair in almost three weeks. The pair is attempting to rebound, but it remains fairly near those lows at the time of writing.
Looking ahead, Australian data could continue to support AUD through the end of the week. Meanwhile the Pound remains sensitive to Brexit developments.
Pound (GBP) Exchange Rates Stumble on Bank of England (BoE) Speculation
A combination of factors are weighing heavily on the Pound (GBP) over the past week, including Brexit and coronavirus jitters. Most recently, Bank of England (BoE) interest rate cut bets have been rising due to market concerns over the Covid-19 outbreak.
The BoE indicated earlier this week that it was prepared to take the necessary steps to protect Britain’s economy from the outbreak.
Bets of a 25 basis point rate cut from the BoE as soon as this month are now fully priced in, after being low a mere week ago. According to Morten Lund, Senior FX Strategist at Nordea:
‘There’s increasing pressure on the Bank of England to shift policy in March. We don’t know how the new governor will react to all that’
What’s more, speculation is rising that the BoE could be pressured into making an emergency interest rate cut outside of a formal decision. This follows yesterday’s sudden Federal Reserve rate cut yesterday.
Australian Dollar (AUD) Exchange Rates Strong as Australian Growth Beats Forecasts
The Reserve Bank of Australia’s (RBA) unexpectedly cut interest rates this week. Despite this, the Australian Dollar (AUD) has been among the strongest major currencies.
Investors are more hopeful that Australia’s economy will rebound due to the RBA acting ahead of the curve on interest rate cuts. The bank not cutting as deeply as some speculated also helped AUD climb.
On top of this, bets of interest rate cuts from other major central banks have surged. RBA rates are not expected to be cut more significantly than Federal Reserve rates. As a result, perceived monetary policy divergence has been doused.
Indeed, broad US Dollar (USD) weakness on Fed rate cut bets this week has been among the primary causes of ‘Aussie’ strength.
Today’s stronger than expected Australian growth rate report also supported AUD. Growth was expected to slow to 0.3% quarter-on-quarter but instead only slipped to 0.5%. Meanwhile, the yearly growth rate unexpectedly rose to 2.2%.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits News on Brexit, Australian Data
The Pound to Australian Dollar (GBP/AUD) exchange rate will remain sensitive to developments around coronavirus Covid-19. However, other notable developments are on the way this week as well.
The UK and EU have been holding Brexit negotiations despite global panic over Covid-19. Any developments that come out of these negotiations have the potential to drive the Pound (GBP).
Sterling would be especially sensitive if any negative comments on Brexit came out of the talks. This would lead to deeper GBP/AUD losses.
Australian Dollar (AUD) investors await key Australian data, due towards the end of the week.
Australian trade balance data from January will be published tomorrow. Retail sales results are due on Friday.
Speculation and developments around further potential central bank easing could also influence the Pound to Australian Dollar (GBP/AUD) exchange rate.