Pound to Australian Dollar Exchange Rate Continues to Surge on Coronavirus Outlook
Despite the past week’s strong Australian data and hopes of a resilient Reserve Bank of Australia (RBA), the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate has seen significant gains this week. Coronavirus jitters are dominating the ‘Aussie’ outlook.
Last week saw an impressive GBP/AUD advance from 1.8934 to 1.9152. This week’s gains have been even more considerable.
At the time of writing, GBP/AUD is trending near highs of 1.9625. It is the highest level for the pair since the aftermath of the 2016 Brexit vote.
The Pound (GBP) is benefitting from Bank of England (BoE) and Brexit sentiment. Meanwhile the Australian Dollar (AUD) has been plummeting all week, due to concerns that the coronavirus outbreak could hurt the global economy.
Pound (GBP) Exchange Rates Anticipating Next Phase of Brexit Process
Britain is set to formally leave the EU later today.
While it is now likely too late to reverse the Brexit process, the Pound continues to see fairly bullish demand.
Pound investors are anticipating the next phase of Brexit. There is relief that one long period of uncertainty has come to an end with progress being made.
As a result of anticipation for the next phase of Brexit, the Pound continued to rally on yesterday’s Bank of England (BoE) news.
BoE rate cut bets were notable. As a result, the bank showing no signs of becoming notably more dovish led to a Pound rally that has extended today. According to Conor Beakey, Economist at AIB:
‘Prior to the meeting, futures contracts suggested a rate cut would be a 50:50 decision,
More generally, the tone of the meeting was less dovish than had been anticipated.
Only 2 Monetary Policy Committee members voted for a cut. At the same time, the central bank acknowledged that downside risks have receded somewhat. As a result, UK swap rates edged higher, though the market is still looking for 25 basis points of easing by year end.’
Australian Dollar (AUD) Exchange Rates Throttled by Coronavirus Jitters
Most of this week’s Australian data was stronger than forecast. It has doused market speculation that the Reserve Bank of Australia (RBA) could cut Australian interest rates soon.
However, even though markets now expect the RBA to be more optimistic about Australia’s domestic outlook at next week’s policy decision, the outlook remains overall clouded by other factors.
Investors have been selling the Australian Dollar throughout the week. The currency, correlated to global risk sentiment as well as Chinese economic sentiment, has been hit particularly hard by concerns around the coronavirus outbreak.
Analysts predict that the virus spreading from China could have a notable negative impact on global growth.
According to Ray Attrill, Head of FX Strategy at National Australia Bank, the Australian Dollar is being seen as a sort of proxy for market concerns over the virus:
‘Aussie and Kiwi are what I’ve called the whipping boys, if you like, for expressing concern about the spreading of the virus and its potential global economic ramifications,’
Pound to Australian Dollar (GBP/AUD) Exchange Rate Outlook Shifts to RBA and Brexit
Will the Pound to Australian Dollar (GBP/AUD) exchange rate continue its bullish run? If next week’s Reserve Bank of Australia (RBA) news is more dovish than expected, it’s possible.
The RBA will be holding its anticipated February policy decision on Tuesday.
The bank is not expected to make any changes to Australian monetary policy, due to recent strength in Australian data. However, the bank will be closely watched for comments on the coronavirus outbreak.
If the bank expresses concern about the virus’ potential impact on Australia’s economic activity, or ramps up concerns about Australia’s bushfire crisis, the Australian Dollar could be in for continued weakness.
This could help GBP/AUD to climb next week. On the other hand, the Pound’s recent strength could be dialled back depending on Brexit sentiment and upcoming data.
The Pound to Australian Dollar (GBP/AUD) outlook could become more bearish if Brexit uncertainties worsen, or if next week’s UK PMIs fall short of projections.