Why is the Australian Dollar Forecast Strengthening?

AUD GBP Takes Aim for Another Move Lower

AUD’s bout of strength against the pound continued yesterday, with GBPAUD falling by almost two cents during the days trading. This positive move for the Australian dollar forecast comes despite the UK relaxing some of their lockdown measures in a bid to boost the economy, whereas the state of Victoria in Australia announced earlier in the week that some lockdown measures would be reintroduced.

AUD Gains Despite Lockdown Measures Being Reintroduced

In the UK, Boris Johnson announced at lunchtime yesterday that lockdown measures would be relaxed further as if July 4th to allow more businesses in the leisure industry to be opened, but this did little to help Sterling gain against AUD. In contrast, the state of Victoria, which is Australia’s second most populated state, announced on Sunday that they would be reintroducing some limits on household and public gatherings from the beginning of this week following a small spike in new Coronavirus infection rates.

The Australian dollar has strengthened against many of its major counterparts over recent months, with one of the main drivers in AUD strength being attributed to how well the spread of the virus was controlled and how quickly lockdown measures were able to be eased compared to many other developed economies particularly in Europe and the US. With the economy in Australia able to get up and running quicker, the drop in economic output has been less than elsewhere and therefore confidence in AUD has risen.

This confidence in the Australian economy and dollar has been mirrored in yesterday’s manufacturing and services Purchasing Manager’s Index (PMI) data released in the early hours of yesterday morning. Both data sets give a strong indication in to how well the economy is performing and make up a significant proportion of Austria’s economic output. The figures released were far more positive than previous estimates had predicted, and we saw a spike in AUD value as a result.

Australian Pension Scheme Iinitiative Could Have Helped Strengthen AUD

Goldman Sachs have identified another potential reason for the recent gains in AUD value which they have attributed to one of the Australian government’s post Coronavirus outbreak measures. The government announced that they would allow workers to drawdown on their pension pots up to A$20K in two tranches over the next few years. Michael Cahill, an analyst at Goldman Sachs, has said, “In the weeks leading up to April 20 – the start of the first withdrawal period – AUD was the second-best performing currency globally. Historical trading volumes around that period suggest the rally was primarily driven by pension funds selling overseas equities and converting the returns (of unhedged holdings) to domestic currency.”

It has been predicted that this decision to allow those feeling the financial implications of the recent crisis to take some money out of their pension pot early could mean an influx of around A$30bn in to the economy, which would explain why this has been linked to the recent rise in AUD value.

Other factors currently affecting AUD exchange rates include the ongoing tensions between Australia and China, and this has caused increased levels of market volatility. News of additional tension between these trade partners has subsided this week, but in recent months Australia’s calls for an inquest into China’s handling of the spread of COVID-19 has led to a war of words and some tariffs imposed by China on Australian goods. Exports to China make up a significant amount of their overall trade balance and therefore positive relations between the two are crucial for the strength of the Australian economy and therefore AUD. If you have an upcoming currency transfer, it is worth speaking with our experienced team to find out how our service can help you take advantage of spikes in the market or limit your exposure to adverse market movement.

Ongoing Brexit negotiations between the UK and EU are likely to be a significant driver in the value of GBP against AUD. The pound has fallen in the last week over fears of a no-deal Brexit potentially looking more likely after EU and UK negotiators have hit an impasse, in particular on UK fisheries. Talks are due to continue in July with the aim of getting close to an agreement by Autumn. If talks continue to fail it is likely we will see GBPAUD rates continue their current negative trend.

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