Overnight the Reserve Bank of Australia (RBA) left interest rates on hold at 0.25% which was widely expected. Back in March the RBA made major changes to their fiscal policy and so far, the Central Bank has purchased AU$50.7 billion of securities, leading to the Governments yield curve down to target (short-end). However last week the RBA did go down to a 3-day schedule for buying bonds which is positive news for the Central Bank.
Australia has been one of the countries that managed to hold its head above water for many years, avoiding recession in over 30 and even avoided having to use Quantitative Easing (Q.E) when there was the financial crash in 2008. However, many forecasters are suggesting that the Australian economy will contract around 10% this quarter due to COVID-19 and further falls thereafter. Unfortunately for Australia it looks like a recession is also on the cards for the Australians in the upcoming months.
The RBA forecasts for the upcoming months are as follows. A 10%% fall in growth for the first 6 months of the year, a 6% fall for the entire year and then a bounce of 6% growth for next year. Like all Central Banks, the outlook for unemployment and inflation in worrying. Unemployment is expected to rise to 10% and inflation could turn negative temporarily, but this is no surprise due to the fall in demand for oil.
Australian Data Releases to Look Out For This Week
It’s a fairly busy week for Australian data. Tomorrow morning the latest Retail sales numbers for the month of March and for Q1 are released, Thursday morning Trade balance numbers including imports and exports take centre stage and to finish the RBA release their latest monetary policy statement. The retail sales numbers are looking impressive at present, but the Trade balance numbers are a concern. For clients making an Australian dollar transfer this week there is an argument to make plans before the trade balance numbers.
Upcoming Events in the UK Which Will Impact the Value of GBPAUD
Around the other side of the globe, UK Prime Minister Boris Johnson is set to provide further guidance regarding the lifting of restrictions. With the death rate still extremely high, early reports are suggesting the UK will take a similar approach as other European nations and lift restrictions gradually, which is no surprise. Boris has made it clear that he will give some guidance on Thursday and a full update on Sunday. This could be because Boris wants to keep Brits at home over the bank holiday weekend. With the possibility that some businesses could go back to work short term, this is good news for the UK economy, however the UK will know more, early next week.
Over the last 3 months, it appears that risk appetite has been driving GBPAUD exchange rates. As we know commodity currencies such as the Australian dollar tends to struggle in times of real uncertainty but so does the pound, due to the UK importing more than they export. It’s crucial for any economy to get back to normal as quickly as possible and with reports suggesting that the UK was hit harder than Australia with the virus, it’s no surprise that GBPAUD exchange rates have dropped by 10 cents in the last month.
This week’s data releases are important for the direction of the UK economy. Services Purchasing Manager’s Index (PMI) data is released this morning and as expected is set to fall sharply and then later in the week the Bank of England are set to release their latest interest rate decision (no change is expected) however the Central Bank will also provide further guidance regarding forecasts for the upcoming months.
Like any forecast at present, the amount of time a country is in lockdown is going to determine economic growth. Central Banks and leading forecasters can’t predict second waves of the virus or when a country will be back to business as normal. Therefore, for clients that are converting GBPAUD, understanding your own circumstances is just as important as understanding the market.
It appears as though global recession is on the horizon, however forecasting which currency will perform better than another is difficult. If you have a currency transfer to make and would like to save money on exchange rates, whilst utilising contract options which enable you to mitigate the risk of quickly moving currency markets, get in contact using the form below.