Market’s Risk-Aversion Keeping Pound to Australian Dollar (GBP/AUD) Exchange Rate Pressured

Pound to Australian Dollar Exchange Rate Slips as Australian Dollar Resilience Persists 

Despite investors moving away from assets correlated to risk in recent sessions, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been struggling to climb. This is largely because the Pound (GBP) is being increasingly affected by risk-sentiment itself. 

Since markets opened this week, GBP/AUD has been fluctuating within a tight region. 

GBP/AUD briefly tumbled to a 2020 low of 1.79 at the interbank level earlier in the week. Since then the pair has struggled to sustain much of a recovery. 

At the time of writing on Friday morning, GBP/AUD is sliding again within the interbank region of 1.80. Still, the current levels aren’t far below the week’s opening levels. 

Key data, including growth and PMI stats, could influence the Pound to Australian Dollar exchange rate. 

Pound (GBP) Exchange Rates Unable to Climb as Risk-Aversion Leaves Currency Unappealing 

Analysts from Bank of America (BofA) said this week that the Pound (GBP) increasingly resembled an emerging market currency. Sterling has been influenced by shifts in market risk-sentiment this week. 

However, even among risk-correlated peers the Pound is unappealing. The week strarted off in risk-on mode but markets have been increasingly moving towards safe havens. 

Either way though, the Pound outlook has been too weighed by coronavirus and Brexit concerns. It has been unable to hold its ground against its more appealing risky rival, the Australian Dollar. 

With more Brexit negotiations ahead, Pound investors are anxious about the chances of a no-deal Brexit. Many UK businesses are increasingly preparing for a potential no-deal outcome for Brexit at the end of the year. 

According to Stephen Adams, Senior Director at Global Counsel which advises businesses on Brexit, said: 

‘Strategy teams are reluctant to bake into their spreadsheets the worst case scenario, 

That can create a whole cascade of choices that are hard and costly to reverse.’ 

Australian Dollar (AUD) Exchange Rates Appealing Versus Other Risk-Correlated Assets 

Global fears that a ‘second wave’ of coronavirus infections is on the way have caused investors to move away from risk-correlated assets in recent sessions. 

As investors look for safer havens, currencies correlated to risk like the Australian Dollar (AUD) have taken a hit. 

However, unlike the UK, investors remain generally optimistic about Australia’s economic outlook. 

Markets have been impressed with Australia’s handling of the coronavirus pandemic. On top of this, the Reserve Bank of Australia (RBA) continues to take a relatively optimistic stance on Australia’s outlook. 

As a result, the Australian Dollar has been more appealing than other currencies correlated to risk this week. 

Pound to Australian Dollar (GBP/AUD) Exchange Rate Movement Could Shift on Key Data 

So long as the Pound’s (GBP) movement is being correlated to risk-sentiment, Pound to Australian Dollar (GBP/AUD) exchange rate movement may be jittery. 

The Pound will remain weak on Britain’s concerning coronavirus and Brexit outlooks. Meanwhile, the Australian Dollar (AUD) could be more appealing due to Australia’s more optimistic pandemic outlook. 

As a result, GBP/AUD may see more solid movement in reaction to upcoming key UK and Australian data. 

Slews of notable ecostats are due throughout the week. UK growth rate figures from Q1 will come in on Tuesday, with final June PMIs from both Britain and Australia towards the end of the week. 

The PMIs could give investors a better idea of how these economies are performing, and influence the Pound to Australian Dollar (GBP/AUD) exchange rate. 

Josh Jeffery

Contact Josh Jeffery