GBP/AUD Exchange Rate Rangebound, Australia’s Economic Outlook Darkens
The Pound Australian Dollar (GBP/AUD) exchange rate held steady today, with the pairing currently trading around $1.953 and narrowly under a two-week high.
The Australian Dollar (AUD) has to remain subdued against its peers this week, with China’s coronavirus epidemic continuing to weigh on market appetite for the risk-sensitive ‘Aussie’.
Ipek Ozkardeskaya, a market analyst at Swissquote Bank, commented:
‘The week started with heavy losses in Asian markets as the number of coronavirus cases outside China surged, spurring worries that it could become a global pandemic. At least ten cities in Northern Italy are quarantined and the Venice Carnival was closed.’
With China being of Australia’s closest and largest trading partners, the Australian Dollar (AUD) has suffered from rising concerns that a weakening Chinese economy would have a directly negative impact on Australia’s currently fragile economy.
Nelson Aston, economist at St. George Bank, Sydney, explains:
‘The coronavirus presents an acute problem for Australian economic growth. Not only does China account for an overwhelming proportion of Australian commodities exports (not limited to iron ore; seafood, meat and other commodities end up in China as well), but many of our services exports rely on Chinese activity.’
GBP/AUD Exchange Rate Steady, No-Deal Brexit Fears Return
The Pound (GBP) remained subdued against many of its peers today after France said that it would not accept a ‘bad trade deal’ with the UK to appease Downing Street’s tight timeframe.
French EU Minister Amélie de Montchalin tweeted today:
‘Just because [British Prime Minister] Boris Johnson wants an agreement at all costs on 12/31 does not mean that we will sign a bad agreement for the French under the pressure of blackmail or time pressure.’
Downing Street has also reiterated its goal to leave the EU as from the 1st January 2020 with or without a deal, leaving Sterling traders feeling jittery over the prospect of the latter, which Boris Johnson refuses to rule out.
Today also saw reports that the UK could renege on its Brexit pledges to Northern Ireland, which could potentially jeopardise a trade deal with both the EU and the US.
GBP/AUD Outlook: Brexit Developments to Remain in Focus
The GBP/AUD exchange rate will continue to be driven by post-Brexit developments this week. Any further signs that UK-EU relations could weaken before the end of the transition period would prove Pound-negative.
Sterling traders will be looking ahead to Thursday’s speech from the Bank of England’s Deputy Governor, Sir Jon Cunliffe. If Cunliffe is downbeat in his assessment of the UK economy going forward, however, we could see the GBP/AUD exchange rate begin to fall.
Looking ahead, we’re likely to see the ‘Aussie’ continue to weaken as the outlook for China’s economy continues to darken amid the coronavirus outbreak. Conversely, however, if the epidemic begins to slow, risk-appetite could return and boost the Australian Dollar.