AUDGBP: Rate Volatility Following Fall in Export Prices

AUD GBP Mixed as Central Banks Feel the Heat

Australian dollar exchange rates have proved volatile over the course of the past 7 days, with sharp swings in value particularly for AUDGBP and AUDEUR. The main factors currently driving AUD rates continue to be global share prices, commodity prices such as oil and coal, and the impact of Covid 19 on the economy. As such anyone who has a pending or upcoming AUD currency transfer should keep an eye on news headlines relating to these topics as they are likely to continue to impact the value of AUD.

Australian Growth Forecast Cut

There was uncertainty and therefore a drop in AUDGBP value yesterday after economist at NAB bank said they believe the effect of the lockdown measures currently in place across the state of Victoria are likely to have a significantly negative impact on the growth of the Australian economy. They have predicted that as much as 3% could be wiped off Q3 GDP numbers for this year across the country. Tony Kelly, Senior Economist at NAB stated yesterday, “The move in early August to stage 4 restrictions Melbourne, and stage 3 for the rest of the State, and fears of further spread, has led to a significant downgrading of our economic outlook. The restrictions in Victoria could well reduce Victorian output by around 15% in Q3. Nationally that would take around 3 per cent off Q3 GDP.”

The lockdown measures introduced have resulted in a loss of jobs across the country and a significant fall in wage growth which was reported earlier this week for July and August. The Reserve Bank of Australia have slashed interest rates since the Covid 19 outbreak in a bid to keep inflation high whilst spending is likely due to fall because of a lack of confidence among consumers. With this loss in jobs and wages, it is likely inflation will remain low and makes it unlikely that the RBA’s stance will change anytime soon which will continue to weigh on AUD value going forward.

Why Has the Australian Dollar Been Weakening?

The Australian economy, and therefore the value of AUD is also heavily reliant on exports of coal and iron ore, the nation’s most rich natural resources. The spread of Coronavirus globally since March and the lockdown measures across many nations which has followed has resulted in a crash in demand for energy. As such, Whitehaven, one of Australia’s largest coal miners, has announced a 95% loss in earnings this year as a direct result of the current pandemic. “The year has been a challenging year in so many ways, and COVID-19 has been the icing on the cake,” Chief Executive Officer Paul Flynn has said. We’ve managed a pretty solid year, but obviously the backdrop here is subdued pricing, no doubt about that, and economic activity in our customers’ markets has certainly suffered in the same way as we as an economy have suffered.”

New South Wales coal export prices have fallen from $100 per tonne to $55 per tonne over the course of the past year and this has had a significant impact on profits. As well as the Coronavirus pandemic the company also sighted the bushfires in the Australian Summer as having a significant impact on cola export prices. This news has weakened AUD in value and any further updates on this topic, or any other Australian exports, is likely to continue to impact AUD exchange rates.

US-China Positive Trade Talks

A positive for the longer-term outlook for AUDGBP rates this week is that tensions between the US and Australia’s largest trade partner, China, appear to be subsiding for the time being after a period of intense strain in relations between the two economic superpowers. The main topics of contention between the two have been the spread of the Coronavirus and China’s involvement in this, as well as the ongoing situation in Hong Kong. However, it has been reported this week that US and Chinese representatives have held constructive trade talks over ‘phase-one’ of a trade deal and the US are confident that both sides are committed to reaching an agreement.

Looking ahead this week and although there are few data releases from Australia due that are likely to impact the AUDGBP rate. there are a raft of data sets due from the US which are likely to create currency market volatility. Federal Reserve Chairman Jerome Powell is due to speak on Thursday and the USD has seen a fall in value ahead of this event due to fears of how the economy is performing and what the response from the Fed could be. The key event for AUD exchange rates next week will be the RBA interest rate decision and monetary policy statement to follow. It would be worth keeping in contact with your account manager here in advance of this event to stay up to speed with all the latest market movements.