Dovish RBA Minutes Leaves the Pound Australian Dollar (GBP/AUD) Exchange Rate Flat

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted as Australia to Face ‘Unprecedented’ Slump

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate was left flat on Tuesday morning. This left the pairing trading at around AU$1.8696.

Both the Pound and Australian Dollar were offered support after encouraging results from a trial coronavirus trial boosted risk appetite.

According to Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo:

‘There has been a big improvement in risk sentiment because of hopes for a vaccine. Volatility is falling for stocks and Dollar-funding costs are lower. It’s easy for the Dollar to fall and for other currencies to ride the Dollar’s losses higher.’

However, the risk-sensitive ‘Aussie’ struggled to make gains as minutes from the Reserve Bank of Australia (RBA) revealed the country is facing an ‘unprecedented’ economic contraction.

The bank also noted that the monetary and huge fiscal stimulus would help to cushion the blow and coronavirus causes economic chaos.

In the minutes, the RBA stated:

‘An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts.

‘Members noted that the nature of the contraction and the expected recovery was also unprecedented because they were driven by public health measures, rather than induced by economic or financial factors.’

Sterling (GBP) Flat as UK Jobless Claims Soar to Highest Level Since 1996

The Pound remained under pressure this morning after data revealed UK jobless claims skyrocketed to the highest level since 1996 in April.

Today’s data showed official measures of the number of people claiming unemployment benefits jumped as the country spent the first full month in lockdown.

The Office for National Statistics showed Britain’s claimant count jumped by 856,500, the largest ever monthly increase.

The jump in claims would have been even higher without the government’s furlough scheme. Those furloughed were paid 80% of their wages by the government and put on temporary leave, which did not count towards the unemployment total.

Tej Parikh, chief economist at the Institute of Directors, noted that while the scheme was holding off some job losses for now, it is unclear what will happen in August when firms are required to help fund the scheme.

He noted:

‘Many companies will still be in the middle of a cashflow crisis, and will struggle with any cost increases. Government faces an onerous task in winding down the scheme without causing too much pain.’

Pound Australian Dollar Outlook: UK Inflation Data in Focus

Looking ahead, the Australian Dollar (AUD) could slide against the Pound (GBP) following the release of Westpac’s Leading Index.

If April’s Leading Index slumps further than expected, it will leave the ‘Aussie’ under pressure.

Meanwhile, any GBP gains could be limited following the release of the UK inflation data.

If Britain’s inflation rate slumps further below the Bank of England’s (BoE) target due to the coronavirus crisis, it will leave the Pound Australian Dollar (GBP/AUD) exchange rate flat.

Millie Empson

Contact Millie Empson