This month the Australian dollar has reached an 8 month high against sterling and over the last 10 weeks exchange rates have increased by 5 ½ cents.
At the beginning of April the Australian dollar forecast was poor against sterling due to a steady increase in the pound’s value off the back of a Tory majority Government and also due to the Australian dollar feeling the strain as a commodity currency because of the global uncertainty surrounding COVID-19. However as stated about since the start of April, the roles have reversed, and the Australian dollar has been strengthening and sterling has been devaluing.
The Australian dollar is seen as a risk-based currency and now that countries appear to be getting a grip of COVID-19 and therefore opening their economies, risk appetite is rising and consequently investment is reaching Australian shores. Furthermore, the price of Australia’s most exported commodity, iron ore, has been on the charge in recent months, due to Brazil problem with exporting. Iron ore broke through the $US100 a tonne level earlier the month for the first time in 10 months. If this continues to rise history tells us that this will be a good thing for the Australian dollar and therefore AUDGBP could continue to increase.
UK Economy Shrinks by 20.4%
As for the UK, this morning the Office for National Statistics (ONS) released its latest growth numbers. No surprises a fall was expected due to the pandemic, however numbers fell to -20.4% and this was the biggest fall the UK has ever seen since the recording of growth numbers. All areas of the economy were impacted, but as you would expect hospitality was one of the major contributors alongside house and car sales. That now takes it to over a quarter of the economy has been lost due to the pandemic and next months figures are set to be the same as this months.
It’s no surprise that the UK Government is trying to open up the economy as quick as they can, however like all nations they fear a second wave of COVID-19 and another full lock down. The way the UK Government ease the lockdown in the weeks to come is going have a major impact on the UK economy. To slow and growth numbers will continue to decline like they have been with unemployment rising dramatically, to quickly a 2nd wave could materialise, which would have a devastating impact on sterling.
If you compare how Australia has been affected in comparison to the UK, its clear to see that the UK economy has been hit much harder and unfortunately for the UK this is set to continue short term.
Another key contributor to the AUDGBP movement is the Brexit negotiations. Anytime the UK come close to crashing out of the EU sterling appears to lose value against the Australian dollar. This week Chief EU negotiator Michel Barnier has warned the UK once more that if they are not prepared to negotiate then the UK will crash out come the end of 2020. Next week Boris Johnson is set to hold a meeting with the EU negotiator to discuss the Brexit progression that has been made. Any commentary from these negotiations is likely to have an impact on exchange rates. In addition the EU summit will also take place next week on the 19th. EU leaders will get together to discuss everything about Europe and the Brexit debate will continue in Brussels. For clients involved in AUDGBP currency transfers, keep a close eye on this event.
If you are looking to purchase Sterling with Australian dollars or vice versa in the upcoming weeks and want further information, you can contact us via the form below and I will give you a call to discuss your currency requirements.