We said on Friday that the Aussie dollar was likely to test the recent lows of late-February against the Pound after a three-day rally in the currency failed to gain traction. The AUD to GBP exchange rate was 0.30% lower in the European trading session and was trading just above the 0.5000 level. If this level holds then there is a good chance that the Australian dollar can reverse recent losses.
The Australian currency is under pressure after recent economic trends saw the U.K. faring better than the Australian, but traders are still awaiting stimulus action from the Bank of England.
Will the U.K. move to cut interest rates?
The Bank of England has seen its outgoing and incoming governors hinting that the country will take action to stimulate the economy after the recent Coronavirus panic. The U.S. Federal Reserve cut its key interest rate by 0.50% per cent and traders expect some form of action from the U.K.
A cut of 0.25% is likely but if they went further then the Australian currency could see a rebound from the recent weakness. The Australian central bank made their own 0.25% cut recently which created a gap between the Australian and British rates.
Economic data will drive the short-term movement
This week sees some economic data coming for the Australian dollar that will maybe drive short-term volatility but not in a major way.
Consumer confidence data and consumer inflation will be watched in a quiet data week for the Australian and British economies. Once those figures are absorbed, the market will continue its recent path. The action around the key 0.5000 level in the AUD v GBP pair is key for the week ahead as we will see whether the level can provide a base for a rebound in the Aussie dollar.
The stock markets are still seeing turmoil with the Dow Jones down 6% and the Australian market down a large 8% on the day. The Coronavirus fear is aligning with a collapse in oil prices, which has hit Asian markets, and this is weighing on the commodity-heavy Australian stocks. If markets keep falling then central banks may take some action but they are running out of tools to stimulate economies and we may see moves in the currency markets that back up those trends.
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