Pound Australian Dollar (GBP/AUD) Exchange Rate Resilient as Risk-Aversion Persists

GBP/AUD Exchange Rate Steady after Recovering from Worst Levels

This month has seen some of the worst levels in years for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate. The Pound (GBP) is avoiding losses despite coronavirus fears though, as these fears are hitting risk-correlated like the Australian Dollar (AUD) as well.

After opening this week at the interbank level of 1.77, GBP/AUD briefly dipped as the ‘Aussie’ benefit from the Pound’s coronavirus panic.

However, these losses were short-lived. As of the time of writing on Wednesday, GBP/AUD is trending closer to the week’s opening levels again.

GBP/AUD has been able to hold above the yearly low of 1.74 seen earlier in the month.

As coronavirus and US fiscal stimulus jitters weigh on risk-sentiment, the Australian Dollar’s recent bullishness has run out of steam this week.

Pound (GBP) Exchange Rates Resilient amid Hopes that Brexit and Coronavirus Crises Can be Averted

Earlier in the week, the Pound was hit by concerns over a more rapidly spreading strain of the coronavirus Covid19. However, amid expectations that existing vaccines will work on it, market panic has calmed somewhat.

News that a French border blockade to stop the new virus was being slowly lifted helped to calm markets.

On top of this, markets remain optimistic that a Brexit deal will be made soon, despite only around a week remaining until the end of the UK-EU Brexit transition period.

According to Neil Jones, Head of FX Sales at Mizuho:

‘The UK-French supply chain restrictions look to soon be back in play whilst the market remains increasingly convinced of a deal with just the fisheries hurdle, all of which is pushing Sterling higher across the board,’

Australian Dollar (AUD) Exchange Rates Unappealing amid Market Risk-Aversion

Risk and trade-correlated currencies like the Australian Dollar have been less appealing this week. This is largely due to reports of a new strain of the coronavirus Covid19 discovered in Britain. The new strain is reportedly more infectious.

On top of this, concerns that the US fiscal stimulus package could be vetoed is weighing on market sentiment. US President Donald Trump is threatening to block the bill as it does not contain enough support for US citizens.

Still, the Australian Dollar has avoided losses against the Pound as well, and is relatively steady, fairly close to its best levels in years. According to Analysts at MUFG:

‘The financial markets have not reacted notably to this threat from President Trump to block the package – our sense is there remains an expectation that Trump will sign it in the end,’

Pound to Australian Dollar (GBP/AUD) Exchange Rate Remains Focused on Market Sentiment

The Pound to Australian Dollar exchange rate could recover more solidly if global market uncertainty worsens further.

If the new coronavirus strain hits more nations and causes more lockdowns, the risk and trade-correlated Australian Dollar is more likely to be hit lower than the Pound.

The Australian Dollar could also weaken if the US fiscal stimulus bill is blocked.

What’s more, the Pound outlook will rise if the UK and EU really do reach an agreement on fisheries and finally reach a Brexit deal in the coming sessions.

On the other hand though, it’s possible for GBP/AUD to fall back towards its worst levels if Britain’s own outlook worsens.

More coronavirus lockdowns and especially a no-deal Brexit would hit the Pound lower again.

The Australian Dollar’s strength could return if coronavirus fears soften or US fiscal stimulus succeeds as well. Overall, global coronavirus and political developments will drive the Pound to Australian Dollar exchange rate.

Josh Jeffery

Contact Josh Jeffery