At present, there could be a continuation for the AUD to GBP mid-market exchange rates gains we have seen over the past 3 months. Although the Australian dollar has been making consistent inroads against the British pound with rates improving from 0.48 to the current 0.55 at time of writing, over the past few weeks the rate improvements have begun to taper off and could plateau shortly if no stimulus, or weakness in Sterling, ensues. Having said that, with the recent news in the UK city of Leicester that they may re-instate lockdown measures with fears that the spike could escalate into a nationwide outbreak, the Australian dollar to pound exchange rates may continue their 14% inroads.
In extension, the Brexit rhetoric continues with UK PM Boris Johnson still discussing the possibility of agreeing a trade deal before the 31st December. There has been very little progress and many analysis’s have stated that there just isn’t sufficient time left to negotiate a deal. As we have seen before, the chief negotiators David Frost and Michel Barnier, who have recently passed their minimal progress back to MP’s, had been at loggerheads to try and break through the previous political stalemate. As the UK had experienced when Brexit was centre-focus for the last 4 years, it had created significant currency weakness when little development had been made to the trade deal. If current events continue, the AUD could witness continues growth over sterling into the latter half of this year.
Spike in COVID-19 in Melbourne
For a country that had followed a similar trend to its neighbouring country New Zealand, Australia has recently taken a turn for the worse as the nation witnessed a sharp rise in cases. Overnight’s total bringing the daily number to 75 – the highest recorded since April 11th. The news comes as the global total toll surpasses 500,000 over the weekend, and more than 10 million cases, with many countries considering re-entering lockdown to combat any further threats of a second wave coming back into the picture.
The question that now comes up is: will we see a drop in the Australian dollar (AUD) as a result of the new spike in cases? With almost 300 Australian’s currently known to be infected by the pandemic the possibility of strict measures being enforced to counteract the recent events could create enough market uncertainty to weaken the antipodean currency. Alongside this, health officials have put in place a plan to test 100,000 people over a 10-day period as the spike in Melbourne has been highly concentrated there with very few cases in other states recently. The other spin on this is that the AUD exchange rates will not be supported from any economic data as this week will be very quiet for volatility-causing releases according to FX Street which could lead to AUD weakness.
Save-Haven USD Could Strengthen Against AUD From Further Global Lockdowns
From a US dollar perspective, the currency movements have followed a similar pattern with April to mid-June’s inroads having eased off, USD has gained some of the lost ground with mid-market dropping from 0.7 in early June to the current 0.686. However, the US dollar could continue to strengthen against the Australian dollar due to its universally known safe-haven status as many countries around the world are heading for a second period of lockdown and increased social distancing. The uncertainty and panic this can create can be sufficient for investors to start purchasing the less volatile USD over the AUD, a commodity currency. Indeed, similar tendencies were seen in the UK previously back in February and March which started the “panic-buying” of loo roll which has just started in Australia with Coles having now capped loo roll purchase to one pack and Woolworths at two packs as the Prime Minister Scott Morrison announcing that there is no reason to panic-buy.
With a great deal still on the cards as we move into July, keep in touch with your account manager here at Foreign Currency Direct to evaluate your Australian dollar trading positions.
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