The pound to Australian dollar fell below 1.80 for the pair last night as the commodity currency continues to be heavily impacted following the onslaught of Coronavirus. Rates for GBPAUD have found support this morning with a slight bounce higher to 1.8036. The Australian dollar forecast from here will depend heavily on the global recovery from COVID-19 and crucially whether or not there is a second wave of infection. As far as the GBP to AUD forecast is concerned this will be heavily influenced by the progress in the ongoing Brexit trade negotiations. Whilst the UK has officially left the EU Britain remains in a transition period until the end of 2020 whilst the details of trade are thrashed out. To date there has been little progress even after the last EU summit concluded on Friday. Negotiations are expected to intensify in the last week of June and will continue to throughout July. UK Prime Minister Boris Johnson said last week that he thought a free trade agreement would be in place by December and that he hoped a could be reached in July. It will be 4 years tomorrow to the day since Britain held that landmark “in or out” EU referendum.
Rates for AUD to GBP are over 25 cents higher than at the start of the global pandemic. Those looking to sell Australian dollars would be wise to consider taking advantage of the rates currently available should there be a market movement with rates moving in the wrong direction. To recap, the Australian dollar performed extremely badly when economies around the world initially went into lockdown but saw a huge shift when it became apparent that governments and central banks globally invested vast sums to keep the global economy afloat.
Will AUD to GBP Weaken if the British Government Announces New Measures?
This week the UK government is expected to announce a reduction in the 2 metre self-distancing rule to 1 metre, something which will allow pubs and restaurants to re-open on the 4th July. Chancellor Rishi Sunak is also reportedly considering a reduction in VAT from the current level of 20% to help boost spending on the high street.
Go back to when labour was in power immediately after the financial crisis of 2008 and the Chancellor at the time Alistair Darling reduced VAT from 17.5% down to 15% for a period of 13 months. Ever since then the rate of VAT in the UK has been set at 20%.
Any major moves from the government that are seen a s positive for the British economy could help support the pound if the market interpret the mot be beneficial. After the UK went into lockdown the government quickly announced measure to support the British economy by keeping employees on the payroll and businesses afloat. The market response was strong with a sharp rally higher in the price of sterling although at the same time risk sentiment improved which helped strengthen the commodity currencies including the Australian dollar.
The Bank of England last week injected a further £100 billion with of quantitative easing into the financial system taking the total to £300 billion. There has been some speculation that the central bank may go down the route of negative interest rates and effective charge banks a small percentage that have funds on deposit. So far this has been avoided and the Bank of England’s outlook is less severe than had initially been forecast. However, a second wave of the pandemic could quickly change the outlook and the central bank appears to not rule anything out. It would appear though that the Bank of England is trying to avoid this course of action and would prefer monetary policy to remain in the usual parameters as best as possible.
Australian economic data is light this week although interest should be placed on the Commonwealth banks Purchasing Managers Index (PMI) data from the manufacturing and services sectors later today. PMI numbers globally are proving to be an excellent barometer of business confidence and how quickly economies are bouncing back from the worst of the pandemic. In Australia pubs and restaurants have already been opening in recent weeks and adapting to the new normal. Cricket has also been streamed online with international matches taking place all pointing to a desire to get things moving again down under. Any strong numbers from the PMI could give some confidence in the Australian economy itself which could further boost the dollar.
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