Pound to Australian Dollar Exchange Rate Benefits from Federal Reserve News
Weeks of more optimistic markets helped the risk-correlated Australian Dollar (AUD), but the Pound to Australian Dollar (GBP/AUD) exchange rate is climbing again today.
Following last week’s plummet of over three cents, from the interbank exchange rate of 1.85 to around 1.81, GBP/AUD has seen more bullish movement again this week.
Since opening this week, GBP/AUD has already regained over a cent. At the time of writing, GBP/AUD is trending in the interbank region of 1.83.
The Australian Dollar’s strong streak has come to an end for now. This is because last night’s Federal Reserve news spooked investors.
Pound (GBP) Exchange Rate Appeal Limited by Brexit Jitters
While its risk-correlated rivals have been weakening today, investors are still hesitant to buy the Pound (GBP) too much.
The British currency is seeing modest gains against the Australian Dollar (AUD) due to ‘Aussie’ weakness. The Pound’s own strength is actually being held back by various domestic concerns.
Not only have investors remained concerned about Britain’s coronavirus situation, Brexit jitters are also flaring up again this week.
There has been no fresh development in UK-EU Brexit negotiations. On top of this, allegedly leaked reports show EU officials have indicated that they are concerned with Britain’s negotiation position.
According to one EU official:
‘But the substance doesn’t exist right now,
We made important commitments in the political declaration. The UK has not followed up on this. And it is also worrying that we have no idea what the UK state aid control system will look like as of 1 January 2020.’
Australian Dollar (AUD) Exchange Rates Sliding as Federal Reserve Spooks Investors
The Australian Dollar (AUD) is a currency often correlated to market sentiment. This is due to Australia’s heavy reliance on trade. As a result, hopes for an economic rebound from the coronavirus pandemic had kept the Australian Dollar appealing lately.
However, last night the Federal Reserve took a more dire stance on the US economic outlook than many economists hoped.
The Fed predicted that the US economy would shrink a whopping -6.5% in 2020, and that the unemployment rate will remain high. The bank forecast that interest rates are expected to remain near zero until the end of 2022.
Investors were shocked by the direness of the outlook. As a result, safe havens like the US Dollar (USD) became more appealing again and risk-sentiment fell. For now, the Australian Dollar’s (AUD) appeal has faltered.
Risk-Sentiment in Focus for Pound to Australian Dollar (GBP/AUD) Exchange Rate
Most of the Pound to Australian Dollar (GBP/AUD) exchange rate’s movement in recent weeks has been due to shifts in global market risk-sentiment. This is likely to persist.
With investors now more concerned about a slow economic recovery in some major economies, risk-sentiment could potentially be lower for a while.
As a result, investors may be less willing to buy the commonly risk-correlated Australian Dollar (AUD). The ‘Aussie’ may remain unappealing even if Australia’s own economic outlook strengthens, depending on how strong safe haven demand is.
GBP/AUD would be able to advance more easily in a risk-off environment, as the Pound would benefit from Australian Dollar losses.
On the other hand though, today’s rise in safe haven demand could still be short-lived.
If other major economies continue to show improvement, markets may become more willing to take risks again.
For now, Pound to Australian Dollar (GBP/AUD) exchange rate investors will continue to await upcoming key data and comments from other major central banks.