Australian Dollar Strength Continues; GBPAUD Just Over 1.80

AUD GBP Lower Ahead of PMI Data for the UK Economy

Despite the gloomy outlook for the global economy, Australia is expected to avoid the worst of the fall and only one other developed nation is expected to be less impacted by the lockdown measures, and this is South Korea. The Australian dollar had already been strengthening against the pound before the seriousness of the pandemic set in, and since March the GBP to AUD exchange rate has been on a downward path. Over the past year the pair have traded as high as 2.08 and as low as 1.7560, and with the pair currently trading around the 1.81 mark it’s clear to see that the pair are trading towards the bottom of their range.

One of the reasons for the stronger outlook for the Australian economy is the way they have dealt with the health side of the pandemic, and it also helped that their government opted to lockdown earlier than many others. There have been over 800,000 job losses since March down under and many of the existing jobs are being propped up by the government, in a similar fashion to the UK’s furlough scheme, so it will be interesting to see how the things pan out as the lockdown measures continue to be lifted.

Whilst the UK has so far dealt with the Coronavirus poorly, in terms of the number of cases and fatalities, Australia on the other hand appears to be one of best equipped to deal with the issue of the pandemic.

Yesterday afternoon the International Monetary Fund (IMF) announced that they expect global economic output to shrink by 4.9% this year due to the lockdown measures imposed by governments to deal with the COVID-19 virus. This prediction is an increase from the consensus in April when the expectation was for a fall of 3% so clearly the negative impact of the measures taken will be more far reaching than initially expected.

Could Sterling Come Under Pressure Again if There is a Second COVID-19 Wave?

The pound fell yesterday against the majority of major currency pairs, especially the US dollar as the pair fell by almost 1% with much of the losses coming after the IMF’s meeting.

As we saw earlier this year when the seriousness of the COVID-19 became apparent, the pound tends to struggle during times of stock market selloffs and market panics. As the UK is a predominantly services based economy that imports much more than it exports, and therefore has a higher than usual current deficit, the currency tends to be targeted so I think those of our readers hoping for a stronger pound should be aware of this.

Yesterday afternoon after the comments from the IMF, we saw the pound come under pressure as the negative impact of the lockdown on global economic output were highlighted. Additionally, there are fears of a second wave now that there have been spikes in food markets in China again, as well as a number of spikes in the US. New York has suggested that those travelling to New York from the areas of the US witnessing spikes should quarantine for 14 days, and this unfortunate news is coming at a time when economies are reopening worldwide.

On top of the increase in COVID-19 cases and fears surrounding the global economy, the UK is also having to deal with the ongoing issue of Brexit which is also having a negative impact on the pound. We now know that there will be no extension to the Brexit transitional period and with both UK and EU negotiators having been in lockdown there have been less trade talks than hoped by now. This topic is also likely to weigh on the pound’s value throughout the remainder of the year, and could potentially push the GBPAUD rate lower.

There are no major data releases coming out of the UK or Australia for the remainder of the week, although recently Australia has posted some impressive Purchasing Manager’s Index readings as Australians return to shopping centres and take advantage of the reopening of hairdressers etc. Next week on Tuesday UK Gross Domestic Product figures will be released which could impact the markets, and this release will come out at 06:00 that morning.

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