GBP/AUD Exchange Rate Edges Higher as ‘Aussie’ Suffers from Risk-Off Markets
The Pound Australian Dollar (GBP/AUD) exchange rate rose by 0.45% today, with the pairing currently trading around AU$1.989 after Australia’s National Australia Bank’s (NAB) report on business confidence dropped to a 6-year low.
NAB Group Chief Economist Alan Oster was also downbeat in his assessment of Australia’s economy going forward, commenting:
‘It is very possible this number will rise as the spread of the virus continues – this would most likely result in a further deterioration in confidence and eventually reported business conditions.’
The Australian Dollar (AUD) has also suffered from a wide-scale sell-off of risk-sensitive currencies amid growing concerns that the global economy could slow down due to the Covid-19 crisis.
Additionally, with China being Australia’s largest trading partner China’s decision to quarantine its population amid the Covid-19 outbreak is sure to negatively impact the Australian economy in the near-term, and possibly even pushing the fragile economy into recession territory.
Westpac Economist Bill Evans commented on the likely impact of the virus on Australia’s economy:
‘Whereas exports (tourism; foreign students; agriculture; resources) and inventories (disrupted supply chains) will explain the major shocks in the March quarter given their exposure to the Chinese economy, the June quarter contraction will be dominated by Australia’s and the rest of the world’s exposure to the virus and the lagged effect of China’s recession in the March quarter.’
GBP/AUD Exchange Rate Improves Despite Weak Retail Sales in February
The Pound (GBP) rose against the risk-sensitive ‘Aussie’ in spite of a weaker-than-expected British Retail Consortium (BRC) retail sales report for February, which fell from, 0% to -0.4% year-on-year.
KPMG’s UK Head of Retail Paul Martin commented on the data:
‘Returning consumer confidence has done little to benefit retailers, with February’s sales growth down 0.4% on a like-for-like basis. The highly anticipated ‘Boris Bounce’ has clearly struggled to materialise in the embroiled retail sector, and looking ahead [Covid-19] isn’t likely to help matters.’
Sterling is being propped up as investors anticipate tomorrow’s Spring Budget. Hopes are beginning to rise that the Budget could stimulate the British economy following the coronavirus’s negative impact on global and domestic trade.
However, with the rising odds of an interest rate cut from the Bank of England in a couple of weeks, we could likely see GBP/AUD exchange rate hit some turbulence in the near-term.
Analysts at Goldman Sachs said:
‘The coronavirus outbreak is expected to push the UK economy to the edge of recession. The hurdle for action is low and the [rate-setting] Monetary Policy Committee (MPC) has sufficient policy space to join other major central banks in easing policy.’
GBP/AUD Outlook: Could the UK’s Spring Budget Boost Sterling?
Australian Dollar (AUD) investors will be looking ahead to tomorrow’s publication of January’s Australian Home Loans report, which is expected to rise by 0.5%. However, with the global coronavirus continuing to threaten the Australian economy, it is unlikely to provide much uplift for the ‘Aussie’.
The GBP/AUD exchange rate will be dictated by tomorrow’s publication of the Spring Budget. Any signs that this could boost the British economy post-coronavirus outbreak would benefit the Pound as the UK’s economic outlook brightens.