Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted as Aussie Retail Sales Suffer Record Decline
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained flat this morning, leaving the pairing trading at around AU$1.8140.
The Australian Dollar remained under pressure today after data revealed Aussie retail sales suffered a historic fall in April. The country’s trade surplus also narrowed as the coronavirus crisis hit the economy.
This has left Australia to face its worst contraction on record in the current quarter.
Data from the Australian Bureau of Statistics (ABS) showed retail sales tumbled by -17.7% after a slump of -8.5% in March.
Separate data showed both exports and imports suffered some of the largest declines in years. Exports plummeted -11% while imports slumped -10%.
With the majority of countries in recession, exports of everything took a severe hit in April.
Australia implemented strict social distancing measures in March to help contain the spread of the coronavirus. This forced many businesses to close, and while some restrictions have eased economists expect it will be a while before activity returns to normal.
Analysts expect Australia’s GDP to contract by around -8% in the June quarter. The dire Aussie retail sales alone is expected to take -2.1% off GDP this quarter.
This would leave the country’s economy facing the first recession in close to three decades after yesterday’s data showed Q1 GDP plummeted by -0.3%.
Sterling (GBP) Flat on ‘Fading Prospect’ of Post-Brexit Transition Period Extension
Over the course of the week, the Pound strengthened on Brexit hopes, which caused the currency to rise to a one-month high against the US Dollar (USD).
Reports revealed the UK indicated it may be willing to compromise with the EU on key sticking points to reach a deal.
Prime Minister Boris Johnson now has until the end of this month to ask Brussels for an extension of the transition period.
A Reuters poll revealed GBP will give up its recent gains against the US Dollar and slide further if Johnson does not ask for an extension. This likely weighed on the British currency today.
James Smith at ING noted:
‘The fading prospect of an extension to the post-Brexit transition period, and the risk of supply chain disruption at the start of 2021, casts a cloud over [Britain’s] GBP outlook.
‘Brexit is back in the spotlight. There’s little to suggest we should expect any real progress, and that’s one reason why we’ve seen some risk premium creep back into the Pound.’
Pound Australian Dollar Outlook: Brexit Negotiations and Consumer Confidence in Focus
Looking ahead, the Pound (GBP) could edge higher against the Australian (AUD) as traders focus on the ongoing UK-EU trade talks.
If traders remain optimistic that post-Brexit trade negotiations between Britain and the European Union will see both sides compromise on key issues, Sterling will rise.
Meanwhile, any Pound gains could be capped following Friday’s release of UK consumer confidence.
If GfK’s consumer confidence shows sentiment amongst consumers plummeted further than expected in May, the Pound Australian Dollar (GBP/AUD) exchange rate will remain flat.