US Fiscal Stimulus Announcement Drags on Pound Australian Dollar (GBP/AUD) Exchange Rate
News that US officials had agreed a $2 trillion fiscal stimulus package saw the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate stumble.
The announcement encouraged a fresh bout of market risk appetite, with investors hopeful that the stimulus will limit the risk of a deeper economic slowdown.
This helped the Australian Dollar (AUD) to return to a positive footing against many of the majors on Wednesday, even as the Covid-19 crisis continued to cast a shadow over the global outlook.
While it remains to be seen whether recent monetary policy and fiscal interventions around the world will be enough to help the economy recover swiftly the general mood of markets still saw an improvement.
Softer UK Retail Sales Forecast to Add to Pound Sterling Weakness
The mood towards Pound Sterling (GBP) could sour on Thursday if the release of February’s retail sales figures points towards a decline in consumer spending.
Evidence that consumers had begun to rein in their spending even before the brunt of the pandemic hit may fuel bets that a sharper growth slowdown could be in store.
Any signs of existing weakness within the UK economy may keep the GBP/AUD exchange rate biased to the downside, given lingering doubts over the growth outlook.
On the other hand, volatility also looks likely for the Pound on the back of the Bank of England’s (BoE) scheduled policy meeting.
After the pair of emergency interest rate cuts seen in the last fortnight the chances of policymakers announcing further action at this juncture looks limited.
Even so, any indication that the BoE could cut interest rates further in the months ahead may trigger fresh volatility for the GBP/AUD exchange rate.
Australian Dollar Gains Vulnerable to Shift in Market Risk Appetite
In the absence of any fresh Australian data releases over the remainder of the week AUD exchange rates may struggle to hold onto a positive footing for long.
Once the impact of the US fiscal stimulus announcement begins to fade the antipodean currency looks set to come under renewed pressure.
With the global economy still deep in the grip of the Covid-19 pandemic any sense of market risk appetite is unlikely to endure.
As analysts at TD Securities noted:
‘We are generally sceptical that the power rally in risk can be sustained without evidence of a matured contagion curve.’
Until the global infection rate shows signs of levelling off the prospect of an extended period of economic disruption may keep the Australian Dollar vulnerable to another bout of selling.
However, if the latest US jobless claims data disappoints this could offer a temporary boost to AUD exchange rates as the safe-haven US Dollar (USD) falls further out of favour with investors.