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Recovering Risk-Sentiment Knocks Pound to Australian Dollar Exchange Rate Outlook

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Pound to Australian Dollar Exchange Rate Slumps ahead of RBA Decision

Last week was a significantly bullish week for the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate, as concerns over a coronavirus outbreak dominated markets. However, those concerns softened slightly over the weekend.

After opening last week at the level of 1.9152, GBP/AUD surged throughout the week. GBP/AUD closed near a high of 1.9749 – the pair’s best level since the 2016 Brexit referendum.

However, when markets opened this week GBP/AUD quickly began to tumble. Investors sold the Pound (GBP) and piled into the Australian Dollar (AUD), leaving GBP/AUD over a cent lower. GBP/AUD trended in the region of 1.9587 at the time of writing.

Coronavirus jitters are still a notable part of the Pound to ‘Aussie’ outlook. Investors are also highly anticipating tomorrow morning’s Reserve Bank of Australia (RBA) policy decision.

Pound (GBP) Exchange Rates Tumble as Brexit Fears Return

The Pound saw a surge in demand last week. Investors bought the Pound in reaction to a less dovish than expected Bank of England (BoE), but many analysts warned that the Pound outlook still contained a lot of downside risks.

As a result, today’s Pound plunge is perhaps unsurprising.

In the first market day since Britain left the EU, the Pound has already shed around half of the impressive gains seen last week.

Investors are selling the Pound as Brexit uncertainties return to focus. UK-EU negotiations are expected to dominate Pound movement this year and a hard Brexit still a possible outcome.

Weekend reports suggested that UK Prime Minister Boris Johnson would insist Britain does not align with EU rules in its post-Brexit relationship.

This, as well as fresh comments from EU Chief Negotiator Michel Barnier, both made investors more anxious about the UK-EU negotiations that would take place this year:

Due to returning Brexit fears hitting the Pound outlook, the British currency saw no notable benefit from this morning’s stronger than expected UK manufacturing data.

Australian Dollar (AUD) Exchange Rates Rebound as Coronavirus Jitters Lighten

Following broad losses last week, the Australian Dollar has been one of the market’s best performing currencies so far today.

Investors are piling back into the risk and trade-correlated Australian Dollar. It comes as markets continue to digest the situation regarding the coronavirus outbreak.

While the coronavirus continues to spread, greater understanding of the outbreak as well as a lack of surprising bad news over the weekend has helped markets to calm. According to Adam Cole, Chief Currency Strategist at RBC Capital Markets:

‘The fact that we haven’t had any more bad news over the weekend means that there is a bit of a sigh of a relief, so Dollar/Yen (USD/JPY) and risk markets are faring better.’

On top of the Australian Dollar recovering from some last week’s coronavirus panic, the currency is firming ahead of tomorrow’s Reserve Bank of Australia (RBA) policy decision.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Awaits Reserve Bank of Australia (RBA)

Could the Pound to Australian Dollar (GBP/AUD) exchange rate plunge even lower in the coming days? If the Reserve Bank of Australia (RBA) is more hawkish than markets expect, the ‘Aussie’ could be in for further gains.

The Reserve Bank of Australia (RBA) will hold its anticipated February policy decision during Tuesday’s Asian session. Due to recent strength in Australian data, markets don’t expect any shift in policy from the bank.

However, due to market concerns around the Australian bushfire crisis and the coronavirus outbreak, investors are anxious that the RBA could take a more dovish stance on Australia’s outlook.

As a result, markets will be closely watching the bank’s tone. If the bank is less dovish than feared, the Australian Dollar recovery could strengthen and GBP/AUD could be pushed even lower.

As for the Pound, any notable developments in UK-EU Brexit negotiations could influence the Pound to Australian Dollar (GBP/AUD) exchange rate as investors await Wednesday’s UK services data.