The Reserve Bank of Australia (RBA) at the end of last week has reported that the Coronavirus impact is going to be significantly worse than was forecast just a month ago. The lockdowns and recent surges in cases is expected to force a much longer lasting impact than was originally expected. Whilst this may not come a s surprise to many it does mean the talk of a fast turn around is something of a distant memory and the Government along with the RBA may have to find themselves returning to the drawing board with regards to planning a recovery.
The recent lockdown in Victoria which includes Melbourne, Australia’s second largest economy has forced many of the businesses that reopened to close. In order for the economy to find its way back to its feet it requires the population to be out spending money, with businesses in turn paying wages. The issue with a lockdown is this process is completely stopped and the Government are going to have to intervene in turn increasing the amount of borrowing.
In the longer term this can have an effect on the raising of interest rates which often has a major impact on the value of a currency. The Australian interest rate is currently at a record low of 0.25% only four years ago it was around the 2% level. The rate is still higher than the UK at 0.1% and it would be unlikely that there will be any immediate changes to this. however in the past few weeks it’s given up around 2%. It is still very much a good time for selling Australian dollars however there could appear to be a swing in the trends.
The Australians were one of the first to really get to grips with the pandemic and were months in advance of the UK when it came to reopening the country. However, the recent resurgence was forced the Government into localised lockdowns. One of the key issues with Australia is that around 80% of all Australians live in 4 large states. Victoria where the latest lockdown has been is home to around 20% of the population, as the whole state has been shutdown that’s a large amount of income for the country.
This effect is limited in the UK as there is a huge distribution of population to other cities so if one city gets locked down the effect on the overall economy is fairly limited. Therefore five different lockdowns in Australia could means most of the population will be included. Alternatively this effect wouldn’t be the same in the UK. This could be a big reason as to why the Australian economy is really susceptible to major disruption going forwards.
In the UK there has been some localised lockdowns but in general there has been a steady number of cases but much of that is down to increasing in testing finding more positive results. There hasn’t been a major spike in the last few weeks, a sign of progress. Secondly for the UK, talks regarding Brexit will start next week and there has been murmurs of a positive outcome hopefully not to far away which could help Sterling. If there was to be even the most basic of trade deals, the removal of a no deal Brexit could have significant ramifications for the pound.
It has been quite thoroughly discussed that from the UK and EU’s perspective a no deal Brexit would be negative for both economies and following the COVID-19 disruption the two economies could do without further issues. This really does mean there is hope of a deal as it’s arguably more important than it was 6 months ago, secondly a lot of the damage feared from a no deal has been done so both sides might be more open to rebuilding rather then posturing.
If you’re looking to have an AUDGBP currency exchange to make in near future then capitalising on your gains these past few months could be a wise choice. But with what we have seen from 2020 so far there is so much that can change in a short space of time. Feel free to get in touch and discuss your plans further if you do have a upcoming transfer or would like further information.