Australian Dollar Forecast – Will AUD be Weaker Ahead?

AUD GBP Lower Ahead of PMI Data for the UK Economy

The Australian dollar continues to maintain some form against many currencies, having benefited from a return to riskier assets as the world begins to make further in roads in tackling and responding to both the health and the economic effects of Coronavirus.

The Aussie dollar will typically rise and fall in line with market sentiment towards the global economy and the global economic outlook. Essentially good news for the global economy and signs of progress being made in battling the Coronavirus have helped the Australian currency to rise.

Examples of this include many countries now over the worst and returning to work, with the easing of lockdown restrictions planned in Europe and the US. Australia has reported 6800 cases and 97 deaths, which whilst of course terrible news is much less than for example the UK where there has been over 200,000 cases and at least 30,000 deaths, truly awful news.

The Australian dollar was initially much weaker on the Coronavirus concerns when the virus was first spreading at the beginning of the year, because of its reliance of China and also because of the economic damage from the fires.

Since then, as Australia has proved successful in keeping the virus at bay, and in line with China having recovered from the worst effects of the virus, the Australian dollar has been stronger. Looking ahead there might be more cause for optimism if Australia can keep battling the Coronavirus and laying foundations for an economic recovery.

What’s the australian dollar forecast for the comings weeks?

Against the pound the Australian dollar has appreciated 7.8% on the interbank rate from the highs that were reached for the pound against the Aussie when the rate was 2.0482 on the interbank rate. For Australian dollar buyers it might be tempting to hold on for a higher level of 1 GBP for 2 AUD but the recent moves back towards 1.90 might be reflecting a trend.

Today, the Bank of England has released its latest forecasts and Interest Rate decision keeping interest rates on hold. The forecasts for the UK are not encouraging with a predicted potential shrinking of the economy of 35% in Q2 owing to the lockdown.

The Bank of England are predicting a 14% decline in the UK economy for this year with the Financial Times reporting that we might need to expect more stimulus in the months ahead, all of which might lead to sterling losing ground against the Australian dollar.

With the UK still in the lockdown and not looking likely to emerge anytime soon, it might be said that the gulf between how Australia and the UK could yet widen further. Whether this would translate into a wider gulf on the exchange rate is of course not guaranteed but the longer the UK is in some form of a lockdown mode, the more harm is being done to the economy.

Boris Johnson will also give a speech on Sunday where he will set out the latest plans for easing of the lockdown with some very minor adjustments reported to be planned to the current measures. Sterling might well find some optimism on this news although concerns over the economic outlook ahead may well prove to be testing for the pound to AUD rate.

Keep an eye on the Reserve Bank of Australia too and the US dollar

The Reserve Bank of Australia has also played a role in shaping movements on the Aussie dollar. The latest interest rate decision this week saw the Australia dollar firming as news broke that there would be no further easing but the RBA was ready to act.

With the RBA now considering and using QE (Quantitative Easing) in their arsenal, the potential for a further loosening of monetary policy up ahead exists. With the RBA having utilised 90 bn AUD of QE so far, the door is open to more in the future, if there is a deterioration in the economic outlook for Australia. This could easily the Australian dollar since the general wisdom is that looser monetary policy leads to a weaker currency.

A key factor too on the Australian dollar is the behaviour of AUDUSD exchange rates, since the US dollar is the worlds most heavily traded currency. Quote often a big movement on the US dollar can see movement on the Aussie against other currencies.

This pairing also epitomises the influence of sentiment in the currency market since the AUD is a great example of a commodity currency as explained above, whilst the US dollar is seen as a classic safe haven currency.

With the US dollar having appreciated so much in March but now much weaker against many currencies, this has seen a reversal of the risk off trading that caused the Aussie to lose ground. As mentioned above, as investors get more confident over the outlook, currencies like the AUD have benefited as they are likely to perform better in a more positive global environment.

Clearly, there are many domestic and global factors to be conscious of for Australian dollar exchange rates so to ensure you have the latest news and information regarding what is driving the levels, please keep in touch with our team and feel free to contact us directly for more detailed information relevant to your particular transfer.

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