GBP/AUD Exchange Rate Muted in Early Trade
The Pound to Australian Dollar (GBP/AUD) exchange rate is mostly rangebound at the start of this week as the coronavirus crisis sparks concerns over the health of UK economy.
At the time of writing the GBP/AUD exchange rate is trading at around AU$2.0154, virtually unchanged from earlier in the session.
Is the Pound (GBP) Vulnerable to Fresh Weakness?
While the Pound (GBP) mounted a convincing comeback last week, analysts warn the UK currency may not be out of the woods yet as the coronavirus continues to dominate market sentiment.
Since the coronavirus crisis began, we have seen Sterling behave increasingly like an emerging market currency, with dramatic swings influenced largely by the value of the US Dollar (USD).
This seems in part due to the exposure of the UK’s vital banking sector to a potential shock caused by the coronavirus’ economic disruption.
Analysts at Nordea Bank suggest:
‘The UK has a twin deficit with the biggest current account deficit (as % of GDP) in G10. A constant capital inflow is therefore needed to underpin the GBP which is challenging in the present ‘dash for cash situation’.’
‘The UK has a large and systemic important banking sector which is particular exposed in times of credit crunches and disturbances in the global funding system.
‘After years of Brexit uncertainty and low returns, Sterling has lost some of its appeal as a major reserve currency.’
Adding to the Pound’s vulnerability are forecasts that the coronavirus crisis could cut the UK’s economic output by an unprecedented 15% in the second quarter of 2020 dwarfing the 2.2% contraction of GDP witnessed in the fourth quarter of 2008 at the start of the financial crash.
Australian Dollar (AUD) Struggles in Risk-Off Trade
At the same time, the Australian Dollar (AUD) is struggling for direction this morning as demand for the currency is dented by falling risk appetite.
This comes as the US has reported an explosion in the number of confirmed coronavirus cases over the weekend, with analysts warning that the peak is still some ways off.
At home, Australian Prime Minister Scott Morrison also announced additional measures to help contain the spread of the coronavirus, denting AUD over concerns the disruption caused will prove even more damaging for Australia’s economy.
Further GBP/AUD Exchange Rate Forecast: UK to Impose Stricter Restrictions in Fight Against Coronavirus?
Looking to the week ahead, it’s safe to assume that coronavirus headlines with continue to act as the main catalyst of movement in the Pound to Australian Dollar (GBP/AUD) exchange rate.
In the UK this is likely to focus on whether the UK imposed stricter conditions on households in an effort to contain the outbreak.
In a letter being sent to every UK household Prime Minister Boris Johnson will write:
‘From the start, we have sought to put in the right measures at the right time. We will not hesitate to go further if that is what the scientific and medical advice tells us we must do.’
Meanwhile, AUD investors will be keeping a close eye on data coming from China this week as they hope to see economic activity in Australia’s largest trading partner begin to bounce back in March as Beijing started to lift its coronavirus lockdown.