Why Does the AUD to GBP Exchange Rate Continue to Rise?

AUD GBP Trades Above 0.5300 Ahead of Consumer Confidence

AUD to GBP exchange rates have been on the rise since the start of April and mid-market exchange rates have increased from 0.4882 to 0.5352 (9%). It appears that the UK have been hit a lot harder than Australia with the amount of cases and deaths that have been reported since the Covid-19 outbreak.

The Australian dollar as a commodity currency tends to be a risk-sensitive currency. Now that investor confidence is on the rise across the glove the Australian dollar has been benefiting. However Australia’s close ties to China could cause problems for the Australian dollar in the weeks and months to come. The US and China debate continues on and it was only this week that the senate agreed a bill which states some Chinese firms will not be allowed to sell stock on the American stock exchange. Couple that with the trade tensions between Australia and China this doesn’t bode well for the Australian dollar. For clients selling Aussies to buy a foreign currency, the good run could be coming to an end.

Brexit causing problems for the pound

Its not good news for the pound at present for a few reasons. UK Prime Minister Boris Johnson has made it clear that the UK will not seek a Brexit extension due to the Corona virus pandemic. This week Michel Barneir has announced that the UK and EU are unlikely to secure a deal at present as the UK are not willing to negotiate. If this trend continues in the weeks to come, I expect the pound could face further pressure.

What Does UK Economic Data Look Like at Present?

As for UK economic data, the numbers have been declining quite rapidly. This morning we saw the latest release of Retail Sales and net borrowing. As the high street has been completely closed it was no surprise to see the monthly figures drop to -18.1%. As for Net borrowing the Chancellors furlough program is arguably one of the best schemes around the globe however it comes at a cost. Public new borrowing has increased to £61.4B. To put this into context the highest reading since April 2013 was 16.7Bn.

Also this week, UK inflation has dropped to 0.8% which has led to the Governor of the Bank of England to write a letter to the Chancellor explaining the sharp decline. This letter should not be to taxing as the slump in inflation was expected due to the dramatic fall in the price of oil. At present Brits are only having to pay close to £1 for a litre of petrol and the demand for petrol is extremely low as the Great British public are still being told to work from home.

Economic Data to Finish the Month of May

It’s a fairly quite finish to the month of May and the UK have a public Bank holiday on Monday therefore no data releases will be released. The key date to look out for next week is on Friday. Private sector credit is released in the early hours of the month in Australia and housing prices are released later that morning for the UK The House market is a key baramoter for the heath of the UK economy. A slight decline is expected, but this data tends to be distorted as it’s the expensive properties in London that bring the numbers down.

Its not looking good for the UK at present and that’s why the Australian dollar has made good inroads in recent weeks. However we are in a middle of a pandemic and anything could happen.

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