IMF: Coronavirus Causing Wider and Deeper Damage to Global Economy
UPDATE: The Pound Sterling Australian Dollar (GBP/AUD) exchange rate edged 0.3% higher this afternoon, leaving the pairing trading at around AU$1.8091.
The Pound was able to edge higher against the Australian Dollar as risk appetite plummeted.
US Dollar strength and fading hopes of a global economic recovery from the coronavirus crisis weighed on risk appetite.
Added to this, a downbeat forecast from the International Monetary Fund (IMF) weighed on sentiment.
According to the IMF, the pandemic is causing wider and deeper damage to the global economy than originally expected.
The Fund now expects global output to shrink by -4.9% compared with their earlier forecast of -3% in April. Added to this, the forecasts said that if there was a major new coronavirus outbreak in 2021, global growth would shrink to 0.5%.
In its World Economic Outlook forecast update, the IMF said:
‘Thus, there is a broad-based aggregate demand shock, compounding near-term supply disruptions due to lockdowns.’
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted as Upbeat Data Offsets Coronavirus Worries
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained muted today, leaving the pairing trading at around AU$1.8060.
Risk appetite improved this week, offering support to both the Pound and ‘Aussie’ after yesterday’s upbeat data.
Better than expected data from the Eurozone helped to boost hopes for a global economic recovery which boosted riskier assets.
While there are lingering uncertainties about the impact of the global pandemic, IG’s market strategist, Jingyi Pan noted:
‘Despite evidence of virus surges across the US, the market’s faith in reduced likelihood of the return of massive lockdowns had enabled investors to largely shrug off that concern.’
These positive signals from upbeat data seem to be enough to offset any worries about the resurgence of coronavirus cases. This left the pairing flat.
According to FX analyst at the Commonwealth Bank of Australia in Sydney, Kim Mundy:
‘We’re still seeing the counteracting forces of the economic recovery on the one hand and concerns around the virus spreading on the other hand.
‘But overnight the Eurozone PMIs lifted, PMIs in the UK lifted and PMIs in the U.S. lifted, so the economic story, that we are seeing the recovery, is helping to underpin the commodity currencies.’
Australian Dollar (AUD) Supported as China Steps up ‘Their Game’ on Trade
Meanwhile, risk appetite was also offered support after a top White House advisor said Beijing has stepped up its ‘game’ on trade.
The US-China trade deal is not only ‘fully intact’ as President Donald Trump reassured markets, but China has stepped forward in a number of areas in a constructive manner.
Speaking to Fox Business Network, National Economic Council Director Larry Kudlow said:
‘They’ve actually picked up their game.’
This marked the latest round of damage control from the Trump administration after White House advisor Peter Navarro said the deal was ‘over’.
The comments from Navarro had weighed on risk appetite and sent the Australian Dollar lower earlier this week. The most recent comments also buoyed the ‘Aussie’, although against GBP the currency remained flat.
Commenting on what Navarro said, Kudlow noted:
‘I think he misspoke. The trade deal is on. No questions about it.’
Pound Australian Dollar Outlook: Will Risk Appetite Buoy AUD?
Looking ahead, the Australian Dollar (AUD) could edge higher against the Pound (GBP) if further upbeat data supports risk appetite.
If the United States continues to emphasise the US-China trade deal is still on the table, it will boost risk appetite. If sentiment amongst investors continues to improve, offsetting fears of a second wave of the coronavirus pandemic, the ‘Aussie’ will jump.
Looking ahead to Thursday, Sterling could edge higher following the release of June’s CBI Distributive Trades data.
If the CBI’s latest data shows the pace of decline in trades has slowed more than expected it will offer GBP support. Upbeat data from the UK and improved risk appetite could leave the Pound Australian Dollar (GBP/AUD) exchange rate flat.