Pound Australian Dollar (GBP/AUD) Exchange Rate Softens as Market Sentiment Improves, But How Long Will this Last as the Coronavirus Crisis Rolls On?

GBP/AUD Exchange Rate Dips in Risk-On Trade

The Pound to Australian Dollar (GBP/AUD) exchange rate opens today’s session on the defensive as an improvement in market sentiment helps to buoy demand for the ‘Aussie’.

At the time of writing the GBP/AUD exchange rate is trading at around AU$1.9643, down roughly 0.5% from this morning’s opening levels.

Australian Dollar (AUD) Rallies amid Improving Risk Sentiment

The Australian Dollar (AUD) is on solid footing this morning, accelerating against the Pound (GBP) and the majority of its other peers amidst an improvement in market sentiment.

This comes as the US Senate finally approved a massive coronavirus stimulus package.

Described by Senate Majority Leader, Mitch McConnell as a ‘wartime investment’ it’s hoped the near $2 trillion stimulus package will help the US economy weather the coming storm, by providing direct payments for US families and support for businesses.

The news has helped to cheer markets overnight, bolstering the appeal of risk-sensitive currencies like the ‘Aussie’.

Karen Ward, chief market strategist at JP Morgan suggests:

‘The Senate’s approval of the $2 trillion package should provide a positive lift to investors’ moods in the near term, complementing the U.S. Federal Reserve’s aggressive action in the past four weeks.’

However, the upside in the AUD exchange rates was tempered somewhat as Australia began to implement more stringent lockdown measures.

Announced by Prime Minister Scott Morrison on Tuesday and coming into force from Midnight Wednesday local time, the new measures will see even more Australian businesses close indefinitely in an effort to prevent the spread of the coronavirus.

The move is set to have a considerable impact on Australia’s economy, much to the disappointment of AUD investors.

Pound (GBP) Steady as UK Inflation Prints in Line With Expectations

At the same time, the Pound (GBP) has begun to claw back some of its losses against the Australian Dollar (AUD) this morning following the publication of the UK’s consumer price index (CPI).

According to data published by the Office for National Statistics (ONS) domestic inflation hit 1.7% in February, a slight slowing from the 1.8% rise seen in January.

While this is a lagging indicator and does not take into account the economic disruption we have seen from the coronavirus in March, the release still appeared supportive of the Pound.

GBP/AUD Exchange Rate Forecast: BoE Policy Meeting in Spotlight

Looking ahead, the movement in the Pound to Australian Dollar (GBP/AUD) exchange rate in the latter half of the week may dictated by the Bank of England (BoE) as it concludes its latest policy meeting.

Having slashed interest rates to a new record following two emergency rate cuts earlier in month as the BoE sought to limit the economic impact of the coronavirus, it seems likely the bank will leave its monetary policy unchanged this week.

However, analysts suspect the BoE may use the meeting to announce plans to further expand its quantitative easing programme.

This may help to buoy Sterling as the expansion of its bond purchasing programme would allow the BoE provide additional support to the government as it launches a massive stimulus package aimed at protecting jobs and wages.

Meanwhile, expect to see the Australian Dollar look to extend its gains so long as market sentiment continues to improve.

Matthew Andrews

Contact Matthew Andrews