Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as UK Government Borrowing Hits Record High

GBP/AUD Exchange Rate Rises Despite Soaring Public Borrowing and Plunging Retail Sales

The Pound to Australian Dollar (GBP/AUD) exchange rate rose by 0.3% today, with the pairing currently trading around AU$1.86.

Sterling edged higher today despite UK government borrowing hitting a record high in April.

UK public sector net borrowing soared above forecasts from £14 billion to £61.4 billion. This left many GBP investors concerned as Britain continues to tackle the coronavirus crisis.

Alex Tuckett, the senior economist at PwC, described April’s borrowing figure as ‘dramatic’, adding:

‘The dramatic deterioration in public finances was driven both by a more than 25% fall (relative to April 2019) in tax receipts as the economy contracted in response to the COVID-19 crisis, and an even more dramatic increase in expenditure (over 50% relative to April 2019), as the government has spent heavily on schemes such as the Coronavirus Job Retention Scheme.’

‘Large monthly borrowing figures will continue until the economy recovers and some aspects of fiscal support can be scaled back.’

Today also saw UK retail sales plummet in April, with the month-on-month figure falling from -5.2% to -18.1%. As a result, Sterling traders have become increasingly concerned about the UK’s economy health going forward.

However, Lisa Hooker, the consumer markets leader at PwC, was hopeful that the worst was over. She said ‘we believe that retail has reached a turning point in the Covid-19 crisis’ as the UK’s lockdown restrictions continue to loosen.

Australian Dollar (AUD) Sinks as US-China Relations Continue to Sour

The Australian Dollar (AUD) has continue to struggle from risk-off markets on the return of US-China trade tensions. This follows the passing of US legislation on Wednesday which restricts Chinese companies from listing on American exchanges.

Analysts from the Chinese investment bank, China Renaissance, commented:

‘In the past several months, US politicians proposed to delist Chinese companies from US stock exchanges with different criteria, and cap Americans’ exposure to the Chinese market. We expect the debate to remain among the top topics of the 2020 US presidential election.’

Furthermore, US President Donald Trump has persistently criticised Beijing’s handling of the coronavirus crisis, adding that his Chinese counterpart had been involved in a campaign of ‘disinformation’.

As a result, the risk-sensitive ‘Aussie’ suffered today, with fears growing that relations between the world’s two largest economies could further deteriorate.

Furthermore, with China being Australia’s closest trading partner, tensions between the two superpowers has darkened the nation’s economic outlook.

GBP/AUD Forecast: Could Easing UK Covid-19 Cases Boost Sterling?

Sterling traders will be awaiting Tuesday’s publication of the UK CBI Distributive Trades Survey for May. However, if the UK’s economic data continues to deteriorate, we could likely see GBP suffer.

Looking ahead, next week is quite on Australia’s economic data front. Nevertheless, ‘Aussie’ investors will be closely monitoring US-China trade developments and the world’s coronavirus status.

We could see the Australian Dollar (AUD) rise if US-China relations improve, while any signs of an easing number of coronavirus cases in Europe would also prove AUD-positive.

The GBP/AUD exchange rate will remain sensitive to the UK’s coronavirus situation next week. If the UK’s Covid-19 cases stabilise or ease of, then we could see Sterling continue to rise.

David Moore

Contact David Moore