The Australian dollar reversed yesterday’s gains and now trades 0.70% lower versus the Pound as the market panic over the Coronavirus impact returned.
The AUD to GBP exchange rate was trading near 0.5000 but had spiked lower earlier on the day to 0.4850.
Virus panic returns to global markets
Recent relief in the global markets has evaporated and we are seeing selling in the key stock indices again. The US stock index is down over 7% in early trading and the drop in futures has dragged the Australian share index lower by 10%. A drop in commodity prices such as the 3% fall in gold is weighing on the Australian currency outlook.
Markets are panicking as the Coronavirus fear takes over and President Trump has banned all travel to the country from Europe for 30 days. Sporting events are being cancelled or seeing their events played behind closed doors and the knock-on events that this will have on sectors such as travel and airlines is sending shock waves through the market and is threatening another credit crisis. The European Central Bank failed to follow the US and UK banks with a rate cut but is planning a stimulus package. Traders are awaiting more clarification on the US and European plans to support the global economy.
Westpac predict a 2020 recession for the Australian economy
Another headwind for an Aussie dollar recovery was a statement from Westpac bank that the Australian economy would dip into recession in 2020.
“On a quarterly basis we expect the economy will contract in both the first and second quarters by 0.3% and 0.3% respectively,” the bank’s chief economist said.
The most vulnerable sector components of consumer spending (hotels, restaurants, air travel) were seen to be the hardest hit. They did expect the country to rebound from that in the third and fourth quarters.
Despite the gloomy prediction, it is almost certain that the European and UK economies will now experience the same fate and it seems like China has been able to contain the virus as it continues to see a small rise in cases per head of population. It’s possible in this dynamic that the consumer-driven economies of the west will suffer more than Asia so the market may not be pricing this into the AUD v GBP currency outlook.
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