Pound to Australian Dollar to be Impacted by AUD Economy

Pound to Australian Dollar to be Impacted by AUD Economy

After gradually weakening throughout much of the past 3-months the Pound to Australian Dollar now sits just above the 1.80 handle, after a couple of positive days for the Pound helped push the currently back above it. There doesn’t appear to be the same level of resistance or support for the pair moving through the 1.80 level as we have previously seen with the pair, and perhaps this is due to the magnitude of events influencing the foreign currency markets at the moment.

Whilst much of the globe is now concerned regarding another wave of the Covid-19 virus, both the UK and Australia are experiencing second waves in parts of their countries. In the UK Leicester has gone back into lockdown and the Aussie dollar has remained subdued recently as the infection rate increase in Victoria. Australia has previously been earmarked as one of the nation’s that’s handled the impact of the virus well as opposed to the UK for example, but now that second waves are occurring I think we could see the Aussie dollar impacted if another key financial centre such as Sydney or Melbourne also experiences another wave.

Yesterday we saw the Australian dollar weaken off the back of some disappointing economic news. Building Permits fell by -16.4% during May, as market activity took a nosedive during April which was when the country was in lockdown. If Australia struggles to recover in the wake of the pandemic, I think we could see the Pound to Aussie dollar rate climb throughout the year, especially if progress is made in the UK’s Brexit talks.

Could Brexit Talks and the Potential for a 2nd Wave of Coronavirus Devastate the Pound?

Despite having a couple of positive days of growth the Pound remains towards the bottom end of its annual trading ranges against most major currency pairs. The Pound has been on the receiving end of some extreme market movements this year as a number of concerns build around the UK economy moving forward. For much of the past 4 years, since the Brexit vote much of the focus for the UK has been on trade talks and trade negotiations between the UK and the EU, as the UK plans to depart via a transitional period. This transitional period, which has already been extended is due to end on the 31st of January next year and with the lockdown measures implemented to restrict the spread, UK and EU negotiators have obviously struggled to meet and attempt to thrash out a deal.

Brexit concerns are now weighing on the Pounds value once again, especially now that we know there wont be another Brexit extension as last month was the last time the UK had to request the extension. Boris Johnson, the UK’s Prime Minister was clear in his statement when he said there will no extension.

So now the combination of no deal being in place and the UK relying on WTO (World Trade Organization) rules after the transition along with further damage being done to the economy due to further lockdowns are beginning to weigh on the Pound with optimism low. The Pound is trading within 10-cents of its 35 year low against the US dollar for example, and within 5 cents of its 11-year low against the Euro to put things into perspective.

The S&P rating agency yesterday described the detrimental combination on the UK as the ‘perfect storm’ and German Chancellor, Angela Merkel has also warned that the EU must prepare for a no-deal Brexit.

Aside from the aforementioned points I think that the tensions building between the US and China could have a knock-on effect on the Australian dollar, due to the interconnectedness of the Australian economy to China. The ban on protests in Hong Kong by Chinese officials has caused a global stir and sanctions are being placed on China by the US again. This could have a negative impact on the Australian economy especially if it means no trade deal can be reached between the two world superpowers.

The only piece of economic data due out this week that involves the pair discussed today is Australian Retail Sales figures which will be released tomorrow morning.You can get in touch using the form below if you wish to be kept updated regarding this.