Pound to Australian Dollar (GBP/AUD) Exchange Rate Slides as RBA Avoids Dovishness

Pound to Australian Dollar Exchange Rate Slides as Sterling Resilience Lightens

Updated 16:38 BST 04/08/2020:

The Pound to Australian Dollar (GBP/AUD) exchange rate had been holding its ground up until earlier today. GBP/AUD is now sliding again as the Pound’s (GBP) resilience softens.

At the time of writing, GBP/AUD has slipped into the interbank region of 1.82. GBP/AUD is still well above last week’s levels but today’s losses have been fairly solid.

Investors are selling the Pound again, as fresh UK coronavirus lockdown speculation adds to Britain’s other economic concerns. According to Francesco Pesole at ING:

‘I believe that the key point to consider is that sterling has had a big rally over the past few days,

The trigger might be the virus situation in the UK that is looking once again quite worrying in the sense that we are hearing about the possibility of the UK government reimposing economic restrictions. The economic outlook for the UK is already quite grave and this would naturally add to that.’

(Originally published 10:22 BST 04/08/2020)

Pound to Australian Dollar Exchange Rate Remains Close to Week’s Opening Levels

Following last week’s broadly bullish movement, the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has been fairly flat since markets opened this week. Investors are hesitant to keep selling the Australian Dollar (AUD) as the Reserve Bank of Australia (RBA) avoided dovishness.

Last week saw GBP/AUD open the week at the interbank level of 1.80 and gain over an impressive three cents. GBP/AUD closed the week above the interbank level of 1.83.

GBP/AUD briefly hovered above the interbank level of 1.84 yesterday. This was the best level for the pair in over a month and a half, since early-June.

Since then though, GBP/AUD has been trending closer to the week’s opening levels again. Investors are hesitant to buy the Pound (GBP) too much amid a lack of fresh support or bullishness in the Sterling outlook.

Pound (GBP) Exchange Rates Run Out of Steam and Uncertainty Persist

Last week, investors piled into the Pound (GBP) due to weakness in the US Dollar (USD) as well as hopes that the UK government was handling the coronavirus pandemic more seriously.

While the Pound initially appeared strong yesterday though, its rally appears to have run out of steam. Investors are hesitant to keep buying the British currency amid Britain’s gloomy outlook, filled with uncertainties.

UK data continues to fall short of expectations, there has been no progress in UK-EU Brexit talks, and the UK government’s coronavirus stance is still seeing mixed reaction.

According to Yohay Elam, Analyst at FXStreet:

‘The UK’s coronavirus situation seems to be going in the wrong direction. The government is working on plans to prevent a broad nationwide lockdown – the mere floating of the idea is a negative sign. It is essential to stress that while certain areas are seeing an increase, broad UK figures remain under control, at least for now.’

Australian Dollar (AUD) Exchange Rates Avoid Losses as RBA Avoids Dovishness

The Australian Dollar (AUD) tumbled last week, as concerns over Australia’s coronavirus situation intensified.

AUD was kept under pressure yesterday amid speculation that the Reserve Bank of Australia (RBA) could become more dovish.

Some speculated that the RBA would have a negative reaction to the new lockdown in Australia’s State of Victoria. Others predicted the bank could express concern about the recent strength of the Australian Dollar itself.

However, the bank ultimately left policy frozen and kept its stance largely unchanged and unsurprising.

The bank believes the worst of the coronavirus fallout is past. However, the bank does believe it will have led to a prolonged period of economic weakness; for at least a couple of years.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Investors Turn to Bank of England (BoE)

The Reserve Bank of Australia (RBA) continues to discount the possibility of negative interest rates, despite the impact of the coronavirus pandemic. The Bank of England (BoE), on the other hand, has yet to fully take negative rates off the table.

The Bank of England will hold its August policy decision on Thursday. The decision is being highly anticipated by markets, amid speculation that the bank could show a shift in stances due to Britain’s relatively gloomy coronavirus and economic outlooks.

If the bank does show any signs that negative interest rates are possible in the future, the Pound (GBP) could be throttled and give up recent gains.

Even if the bank takes a more cautious stance overall though, the Pound is likely to see deeper pressure. Investors will be hesitant to buy the Pound much higher and more likely to sell Sterling again on a dovish BoE.

Surprisingly positive UK services data or Brexit developments, or a surprising hawkish shift from the BoE, are the most likely reasons for continued Pound strength.

The Pound to Australian Dollar (GBP/AUD) exchange rate may also be influenced by Australia’s July PMI results, due tomorrow.

Josh Jeffery

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