GBP/AUD Exchange Rate Edges Higher, Australia’s Economic Outlook Darkens
The Pound to Australian Dollar (GBP/AUD) exchange rate soared by over 1.2%. The pairing is currently trading around AU$2.03.
The Australian Dollar (AUD) struggled after Organisation for Economic Co-operation and Development (OECD) predicted that Australia’s economy could suffer a 22% decrease in growth in the short-term due to nation’s coronavirus lockdown.
The OECD said in its statement:
‘If the shutdown continued for three months, with no offsetting factors, annual GDP growth could be between 4-6 percentage points lower than it otherwise might have been.’
‘The implications for annual GDP growth will depend on many factors, including the magnitude and duration of national shutdowns, the extent of reduced demand for goods and services in other parts of the economy, and the speed at which significant fiscal and monetary policy support takes effect.’
The risk-sensitive ‘Aussie’ also suffered from the World’s Bank warning of an ‘unprecedented shock’ to the economy after global coronavirus cases pass 800,000. Consequently, investors are steering clear of the risk-correlated currencies like the New Zealand Dollar and Australia Dollar and investing in safe-haven currencies like the US Dollar instead.
GBP/AUD Exchange Rate Rises on UK-EU Brexit Timeline Extension Optimism
The Pound (GBP) rose against the Australian Dollar (AUD) as optimism has grown over a possible extension to the UK-EU timeline for Brexit negotiations. As a result, GBP has benefited from hopes that extra-time could be provided for the UK and the EU to secure a post-Brexit trade agreement.
Shaun Osborne, the chief strategist at Scotiabank, was also optimistic, commenting ‘GBP may be gearing up for an important appreciation in the coming weeks’.
However, the Centre for Economists and Business Research (CEBR) was downbeat in its economic forecast for Britain, saying that the UK’s growth could deteriorate by up to 15% in just three months.
Today also saw the release of the UK GDP figure for the fourth quarter, which confirmed consensus and stagnated at 0%. But with the coronavirus set to further weaken the UK’s GDP in the first two quarters of 2020, we could be looking at GBP weakness further down the line.
Ruth Gregory, the senior UK economist at Capital Economics, commented on the report:
‘The confirmation that the economy stagnated in Q4 2019 shows that it was very weak even before the spread of the coronavirus in the UK. The spread of the virus [has] forced firms to tighten their belts and wide swathes of discretionary household spending to dry up.’
GBP/AUD Forecast: Could Risk Sentiment Drop Further and Weaken the ‘Aussie’?
Pound (GBP) traders will be awaiting tomorrow’s publication of the UK Manufacturing PMI for March. If this confirms consensus – or sinks deeper into contraction territory – we could see GBP lose some its gains as the UK’s economic outlook continues to darken.
Australian Dollar (AUD) investors will be awaiting tomorrow’s Australian Building Permits report for February. Any signs of this dropping even before the coronavirus took hold of the nation, and we could see the ‘Aussie’ continue its struggle.
The GBP/AUD exchange rate will be driven by coronavirus developments this week, with any further threats to the global economy weakening the appeal of the risk-sensitive Australian Dollar.