China has banned imports of beef from Australia in a controversial move that could also see other key Australian exports like wine and seafood also included, proving that despite the currency’s recent strength, Australia is not completely immune to further uncertainty ahead,
The move marks a deterioration in relations since Australia launched an enquiry into the origins of the Coronavirus. The Times reports this story with news that Australia exports ¼ of its beef to China with the Chinese arguing the reason was poor labelling and health requirements.
This could mark the sign of fresh uncertainties ahead, particularly since China is Australia’s key trading partner, and one of the main reasons for the resurgence of the Aussie has seen the improvements in the Chinese economy since the outbreak peaked in China.
Despite this news the Australian dollar has maintained its recent improved performance against the pound this morning, as a Westpac Consumer Confidence survey and Wage Price Index data all provide signs of improvements in the Australian economy.
The Westpac survey showed a reading of 16.4% against the previous -17%. This survey is an insight into consumers’ spending behaviour in the future, and the positive reading indicates more optimism than previous by consumers. Wage Prices continued to rise at 0.5% which signals continued trajectory in the reading, again something positive for the Australian economy.
Today we have also had the latest UK Gross Domestic Product data, providing insight into the performance of the UK economy so far in the first quarter of this year. Expectation for the data was -1.6%, but the reading came in at -2%. This is not great news for the UK economy and might affect the Australian dollar forecast for GBPAUD rates further, because of this news and poor economic performance by the UK.
The GBPAUD exchange rate is currently 1.8963, down 8% from their previous highs of 2.0482 seen in April. On a 250,000 AUD transfer back into sterling, that is an extra £10,000 on a trade based on the high to low on the interbank rate within that period.
Part of the reason for this move can be attributed to Australia’s containment of the virus with only 97 deaths reported so far, and many of the restrictions now being eased. We can compare and contrast this with the UK which is still in the midst of the lockdown and the problems that will create for the economy in the long run. Reported deaths from Coronavirus in the UK are over 50,000, a much higher number than Australia and as mentioned perhaps reflective that Australia has been less harmed by the virus and their economy will recover sooner, thereby helping the currency.
For the Aussie dollar we have Unemployment data due tomorrow where the rate is predicted to have risen from 5.2% to 8.3%. Whether this is priced in or not is difficult to tell since lately the Aussie has been a better performer, as evidenced by its rise against sterling described above. This is something to monitor ahead.
What other factors have been driving the Australian dollar forecast?
The Australian dollar has been an interesting currency to track in the wake of the Coronavirus owing to its relationship to China, the origin of the virus and it’s performance as a commodity currency whereby it can rise and fall in line with the outlook on the global economy.
With such volatility and major events in 2020 including of course the pandemic but also the fires at the start of the year, the Australian people, economy, and currency have been through some major events.
At present the Australian dollar has however been stronger than some of the previously weaker levels recorded since the Coronavirus really began to take off earlier in the year. As the virus spread throughout the world in April the Aussie dollar lost ground, GBPAUD levels were at 2.0482 at their weakest against sterling.
Since then, as Australia has proved very resilient at dealing with the crisis and importantly China too has proved effective at getting back on track, the Aussie dollar has risen against many currencies, including sterling as described above. GBPAUD levels are currently 1.8963, that is a move of 8% stronger for the Australian currency against the pound since the 2.0482 rate on the 4th April.
Another important factor driving the Australian dollar is commentary and actions by the Reserve Bank of Australia (RBA) who have since the onset of the pandemic announced various measures designed to shore up confidence in the Australian economy.
This includes cutting interest rates to 0.25% and implementing a plan of Quantitative Easing, all of which triggered some volatility on the Australian currency. Typically, the cutting of interest rates and loosening of monetary policy leads to a weaker currency.
Whilst Australia’s Central Bank made clear at their latest meeting they are poised to act further if needed, they have not so far embarked on any further stimulus measures and this has helped to cement some of the more recent gains. This could be contrasted to the UK where yesterday Rishi Sunak, the Chancellor, announced the extension of the furlough scheme to October at a cost of £80bn to the British economy. The UK is still looking at new measures to support the fight, Australia’s exercising of measures has so far been deemed sufficient and again shows how Australia is ahead of the UK on this topic.
Another recent turn of events this week which has influenced sentiment on GBPAUD levels is news that in some countries where the virus was thought to have been tackled, we are seeing fresh cases. For example, Germany has reported new and fresh cases, highlighting that once the lockdown ends, the path back to normality is likely to be anything but straightforward for many countries.
Despite the Aussie better outlook so far on the events discussed above, the potential for a second wave of infections in China could of course disrupt the more positive picture. It will be interesting to see how the market takes the upcoming Unemployment data tomorrow too, plus any further news of tension with China.
If you are considering a transfer ahead involving the pound and Australian dollar, and wish to discuss the latest market news and events to move your rate, I would be most interested to hear from you and share some of the latest news and events to influence your transfer.
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