Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Slides as RBA Inject $8.8 Billion into Economy
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped this morning, leaving the pairing trading at around AU$1.9982.
In response to the coronavirus pandemic, governments and central banks across the world have readied emergency measures. Although, after the worst day since 1987, markets began to stabilise and AUD edged higher.
The ‘Aussie’ received some support after the Reserve Bank of Australia announced it was injecting $8.8 billion into short-term funding.
The RBA added $8.8 billion into the ‘repo’ market, up from the intended $3.74 billion, which provided short-term cash to commercial bank counter-parties.
According to Martin Whetton, head of bond and rates strategy at CBA:
‘There’s definitely strains in the market, and the RBA has acted to add extra liquidity to offset that.’
Markets were calmed by the intervention, similar to that seen from the Bank of England (BoE) and Federal Reserve.
Traders welcomes the moves from the RBA, and Peter Sheehan of Curve Securities noted:
‘There’s enough [money] to go around – it’s just a matter of whether people share.’
Pound (GBP) Flat as PM Warns ‘It’s Going to Spread Further’
Risk appetite took a hit on Thursday after US President Donald Trump announced his 30 day travel ban to Europe.
Added to this, stimulus measures from the European Central Bank (ECB) fell short of expectations and disappointed markets. This caused the Pound to slump as investors flocked to more traditional safe-haven currencies such as the US Dollar (USD).
While the US flight ban does not include the UK, this is seen as a clear sign of an escalating crisis and also weighed on the risk-sensitive ‘Aussie’.
Meanwhile, European leaders warned that the situation would get worse before it gets better.
Speaking at a news conference, Prime Minister Boris Johnson said:
‘It’s going to spread further. I must level with you, level with the British public – more families, many more families, are going to lose loved ones before their time.’
The earlier stimulus announcements from the Bank of England (BoE) and British Chancellor Rishi Sunak did little to boost GBP at the end of the week.
Commenting on this, senior FX strategist at Nordea, Morten Lund said:
‘I think of course they [the BoE and UK government] tried to surprise us with the rate cut and a big package. I thought it was well coordinated but I think people are still so scared they don’t want to be long Sterling. It still makes sense to be somewhat short Sterling.’
Pound Australian Dollar Outlook: Will a Dovish RBA Send AUD Lower?
Looking ahead to next week, the Australian Dollar (AUD) could reverse today’s gains against the Pound (GBP) as the number of coronavirus cases increases.
If the cases continue to surge worldwide, the risk-off mood will continue into next week and leave the ‘Aussie’ under pressure.
Meanwhile, the Reserve Bank of Australia (RBA) meeting minutes are due to be released overnight on Tuesday.
If the minutes are overly dovish and suggest the bank will need further easing due to the coronavirus pandemic, the Pound Australian Dollar (GBP/AUD) exchange rate will rise.