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Coronavirus Lockdown Fears Keeping Pound to Australian Dollar Exchange Rate Outlook Volatile

Pound to Australian Dollar Exchange Rate Avoids Steeper Losses amid RBA Signals

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has avoided losses despite a surge in UK coronavirus fears. This is because market risk aversion and the latest dovish signs from the Reserve Bank of Australia (RBA) are weighing on the Australian Dollar (AUD) outlook.

Brexit hopes helped GBP/AUD to rebound from near lows of 1.7523 to 1.7717 last week. However, this week’s currency movement has been volatile.

Investors are hesitant to make big movements as both currencies weaken. At the time of writing on Tuesday, GBP/AUD is fluctuating close to the level of 1.7800.

The Pound (GBP) outlook is increasingly uncertain as coronavirus fears intensify and Brexit fears persist. This will likely keep a limit on the Pound to Australian Dollar exchange rate’s advance potential.

Pound (GBP) Exchange Rates Weighed by Fears of Second National Lockdown

The Pound’s (GBP) potential to gain against the Australian Dollar has been limited this week. The British currency is being hit by signals that Britain could be headed for a second national lockdown to prevent the spread of the coronavirus pandemic.

The number of coronavirus cases in Britain has surged in recent weeks, to around 4000 per day. Yesterday, the government’s medical experts warned that this number could worsen exponentially over the next month unless action is taken.

This caused the Pound to slump yesterday on lockdown fears. However, there are also hopes that the UK government’s upcoming lockdown plans won’t be as strict as they were during the first lockdown.

According to Analysts at MUFG:

‘Assuming a full two-week lockdown (‘circuit-breaker’) is avoided, the markets may show signs of relief given there has for some time been a strong assumption that full lockdowns like in March-May would be avoided,’

Australian Dollar (AUD) Exchange Rates Pressured as Reserve Bank of Australia (RBA) Signals Policy Options

The Reserve Bank of Australia (RBA) has been more hawkish than expected amid the coronavirus pandemic. It has been part of the Australian Dollar outlook’s lasting resilience, despite the currency being commonly correlated to risk.

However, RBA Deputy Governor Guy Debelle said today that the bank was looking at other policy options. The bank was considering interest rates going lower ‘without going into negative territory’, he said.

Debelle also indicated that the bank would remain focused on Australia’s job market:

‘Given the outlook for inflation and employment is not consistent with the bank’s objectives over the period ahead, the board continues to assess other policy options,

The recovery in the labour market is likely to be bumpy and uneven and we still expect the unemployment rate to rise from here.’

Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook Could be Influenced by PMIs

Tomorrow will see the publication of September PMI projections, for both Australia and Britain.

Australia’s PMI projections will be published by CommBank during the Asian session. The manufacturing report is likely to be particularly influential as Australia is a trade-heavy nation.

Britain’s PMI projections will follow in the European session. Investors will focus on the services sector report when it is published by Markit.

If the data is highly surprising for investors, it could influence the market’s outlook on how economies are handling the coronavirus pandemic, and this could influence currency outlooks as well.

Of course, developments on Britain and Australia’s domestic coronavirus lockdown plans could also influence the Pound to Australian Dollar (GBP/AUD) exchange rate outlook.