The Pound to Australian Dollar (GBP/AUD) exchange rate began this week’s session trading around AU$1.800. However, the risk-sensitive ‘Aussie’ is under pressure after China – Australia’s largest trading partner – reported the highest new cases of Covid-19 since April.
Last Week: Sterling Rises as UK Services PMI Beats Forecasts
The Australian Dollar (AUD) performed strongly at the beginning of last week, with hopes of a coronavirus vaccine buoying hopes for the global economy’s recovery.
Nonetheless, the ‘Aussie’s gains were quickly clipped following news that Japan’s economy – the third largest in the world – had suffered from falling exports. As a result, the Australian Dollar (AUD) suffered a sell-off in favour of safe-haven currencies like the Euro and the US Dollar.
Analysts at Reuters commented:
‘Japan slipped into recession for the first time in 4-1/2 years in the first quarter and is on course for its deepest post-war slump as the health crisis hurt businesses and consumers.’
Meanwhile, Sterling benefited early in last week’s session after reports that UK shoppers were steadily returning to the high street. This buoyed hopes for Britain’s economic recovery from the Covid-19 crisis.
Wednesday saw the Australian Dollar (AUD) edge higher after the Australian Westpac Leading Index for June rose from 0.2% to 0.44%, boosting confidence in Australia’s economic performance.
Friday saw the GBP/AUD exchange rate head higher after the UK’s Services PMI for July beat forecasts and emerged out of contraction territory at 56.6. As a result, Sterling traders were more optimistic that the economy could be on the road to recovery.
Chris Williamson, Chief Business Economist at IHS Markit, commented on the data:
‘While the stabilisation of business activity in July is welcome news, the lack of growth is a disappointment. Moreover, a renewed acceleration in the rate of loss of new business raises concerns that demand is faltering. Many companies, notably in consumer-facing areas of the service sector, linked falling sales to re-imposed lockdowns.’
Three Things to Watch Out for This Week
- Australia’s Inflation Data
Wednesday will see the release of the Reserve Bank of Australia’s Consumer Price Index for the second quarter. If this confirms consensus and eases by -0.2%, then we could see AUD suffer.
- UK-EU Brexit Developments
Brexit will remain in focus this week. Any signs that UK-EU post-Brexit negotiations remaining in a deadlock would prove GBP-negative. Conversely, if negotiations show signs of progress, we could see the Pound head higher.
- Risk Sentiment
The Australian Dollar (AUD) will continue to be driven by risk sentiment this week. If the global economy looks set to worsen, then we would see the risk-averse ‘Aussie’ suffer.
The Pound to Australian Dollar could edge higher if global risk-sentiment slides on fears of a second-wave of the coronavirus. As a result, we could see the Australian Dollar suffer as investors become weary of risk-sensitive currencies.