Australian Dollar Forecast – Unemployment Weighs on Sentiment

AUD GBP Higher Again Despite WA Shutout

Overnight we have had the latest Australian Unemployment news which has seen a rise in Australian Unemployment to 7.1% from the previous reading of 6.4%. This was larger than economists had forecast and paints a now familiar picture across the global of rising Unemployment. The rather gloomy outlook for the Australian dollar forecast had also been echoed by the Reserve Bank of Australia (RBA), who according to the Australian Financial Review have been predicting house price falls of 15% ahead. Such a trend could be worrying for the Australian outlook ahead and would put further pressure on the RBA to consider action.

Previous activities by the Australian central bank to cut interest rates and also look at Quantitative Easing (QE) to help stimulate the economy has seen the Aussie dollar weaken, any signs that the moves taken so far are not being as effective as hoped, might see policy decisions by the RBA in focus once again in focus.

Another key driver for the Australian dollar is risk sentiment, where as global confidence rises and falls, so too often does Australian dollar strength. A good example here would be the Australian dollar rising in value with signs of the virus being tackled successfully. .

And where more recently we have seen greater concerns that perhaps we are seeing an increasing risk of a second wave throughout the world, the Australian dollar has lost value. This is because the performance of the Australian economy can be linked to sentiments on global trade, and as that outlook is changing according to how well the world is battling COVID-19, so too can we see the movements highlighted on Australian dollar rates.

In order to understand where the Australian dollar may be headed in the future, it will be important to see how the pandemic continues to play out, and to monitor events in China which often influence the Australian dollar since it is their biggest export market.

Tensions between Australia and China have been demanding greater clarification on the origins of the pandemic since the outbreak with Australia .

Looking ahead, it will be important to monitor the latest second waves since some of the latest cases of reinfection are in Beijing, which has put its 21 million residents on lockdown as reported by the Times today. The Australian dollar had in recent weeks been benefitting from signs that both itself and China were coming out of the lockdowns faster than many Western countries, and reporting fewer cases and deaths. If this trend is going to begin to reverse it may follow that the Australian finds itself under increased scrutiny, inline with how it has previously behaved in such a situation.

What Can we Expect for Australian Dollar to Pound Exchange Rates?

Today is a key date for the Aussie against the pound as the Bank of England releases its latest Interest Rate decision with all eyes on the potential for changes in either interest rates, Quantitative Easing or both. Such measures will often weaken the currency concerned although just lately sterling had found a little support and made some gains as very tentative signs the UK and EU might seek a deal before the end of the year helped the pound to reverse a tough a few weeks.

At their lowest the GBPAUD level fell to 1.8066 on the 5th June, the strongest the Australian dollar has been against the pound on the interbank rate since October 1 Australian dollar buying £0.5535.

Today’s Bank of England decision and also the beginning of an EU Summit on Brexit could see some increased focus on the pound from global investors, to try and better understand where the UK is ultimately headed as it formally breaks ties with its largest trading partner, the EU.

Pound to Australian dollar rates are sensitive to many of the hot topics globally right now, namely Coronavirus and the outlook on Brexit. With both events very difficult to predict it can be difficult to make wholly accurate predictions since the movements on the currency are likely to be a reflection of the ultimate outcomes and developments from both situations.

What is clear is that both COVID-19 and Brexit are far from finished situations and there is likely to be more volatility ahead as the market has to digest new information, based on how the events turn out.

There is plenty of arguments to suggest GBPAUD levels could rise higher back over 1.90 and back to the 2 mark if certain conditions are met, we have been over 2 on the interbank rate this year so it is possible it would happen again if perhaps a Brexit deal was found and sterling really found some confidence, against perhaps a much weaker Australian dollar. This is not guaranteed but is a potential scenario.

And we can float a possible situation in the other direction, where if the UK was headed for no-deal Brexit, and greater global confidence had helped the Australian dollar to be supported, the GBPAUD level may fall lower than where it is now, potentially breaking or testing last July’s lows of 1.7691 or 1 AUD buys £0.5652.

Of course, no one can accurately and consistently predict the future, and exchange rates are just a reflection of market sentiment towards unfolding news and events. But, by using a deep knowledge of what drives the levels and looking to the current events and what might be around the corner, it is possible to paint some potential direction of market travel, even though that is no guarantee of how events will turn out.

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