The risk sensitive Aussie dollar remains weak as any short-term gains soon get swept away. The positive global sentiment following the US’s Federal Reserve’s “we’ll do whatever it takes” moment as they launched a quantitative easing plan on a scale never seen before (US$2tn), soon faded away and once again left the Aussie currency weaker. It’s been known for a long time that when China sneezes, Australia catches a cold, due to the heavy reliance on trade, but the Australian economy has been squeezed for quite some time now, and with little light at the end of the tunnel, the Aussie dollar may be in for a rough ride as they brace themselves for the coronavirus epidemic.
Australia’s Measures Taken to Combat the Coronavirus
Australian prime minister Scott Morrison has told the nation to stay at home, banning social gatherings, shutting down businesses and restricting people’s movements to essential journeys only, in order to prevent the spread of coronavirus. Having analysed many other countries approaches, the Australian government is hoping these measures applied at a much earlier stage will be enough to starve off the he dreaded virus and all that it brings with it. However, Morrison has not ruled out further measures and will act accordingly if and when necessary. Interest rates have been slashed to 0.25% and the Reserve Bank of Australia has announced an unprecedented stimulus package to help support the country.
Whilst daily AUDGBP activity is choppy, the currency pair is trading at a similar level to one week ago and is only 1.3% worse than a month ago. A 3-month chart shows a loss of 6.1% but this could’ve been much worse had it not been for a weak pound.
The coronavirus epidemic has been chaotic for the pound causing double-digit percentage losses against some currencies although the Aussie dollar has not been one of those currencies. The UK currency is heavily reliant on inward investment and as risk appetite has lessened, so has inward investment. Many businesses are now of the opinion that cash in the bank is what’s important and what’s needed if they’re to weather this storm.
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