Aussie Dollar Weakness See’s AUD to GBP Forecast Downgraded

AUDGBP Sees New Yearly Lows as Protests Grow

Over the past week or so we have seen the trend for Aussie dollar weakness against the pound, with AUD recovering a few cents from the one-way trend we had witnessed since the beginning of April.

When compared to the pound the Australian Dollar has strengthened significantly during this timeframe, with AUDGBP gaining by over 10% over the past 4 months due to both Sterling weakness along with Aussie Dollar strength. Australia had previously been held in high esteem in regards to the way they dealt with the pandemic despite the population being concentrated in cities, but recently the pandemic has resulted in a 2nd wave spike which has impacted sentiment surrounding the Aussie dollar at the moment.

The country’s second most populous state, Victoria has had to go into lockdown recently to try and quell the growing number of cases down under, and just yesterday it emerged that military personnel will be deployed to enforce the new lockdown rules because there has been some resistance to the measures. There have also been some reports of attacks on police which is another reason for the deployment of military personnel. Fines have also been implemented.

This is a stark turnaround from a few months ago for Australia, and it’s likely to be behind the Aussie Dollar weakness although the AUDGBP pair have a long way to fall before reaching the lows of 4-months ago so those of our readers with Aussie dollars to sell may wish to consider the longer term trend rather than just the one from the past few weeks.

Also, to put things into perspective, Australia has seen far fewer deaths from the virus than most other developed economies which is why the currency has performed well this year.

In the UK we have seen some green shoots in terms of economic growth as the economy has reopened since the lockdown. Many believe the lockdown was implemented too late hence the UK’s disastrous record in relation to the number of deaths from the virus.

The UK housing market has reopened and during July we saw the biggest 1-month climb in property prices (1.7%) in 11-years. There were also record numbers of mortgage approvals, so the UK property market has outperformed expectations so far.

Brexit Deadline of October Nears

Much of the talk around the pound’s forecasts surround the Brexit talks which are likely to heat up especially as October approaches. Last week it was announced that UK and EU trade negotiators will be in discussions up until the 2nd of October which could be key as on the 15th and 16th of October there will be an EU Summit. The plan is for a deal to be in place by then so that EU legislators can implement the rules over the next few months, so everything is in place for when the UK’s current transitional deal runs out. We know that there wont be another extension as June was the final month for one to be requested, so I think the weeks leading up to October could be crucial and we could see more GBP/AUD exchange rate fluctuations for this reason.

One of the key economic updates this week is likely to come from the Bank of England this Thursday. No interest rate changes are expected, and the rate is already at a record low of 0.1% although the talk of negative interest rates does appear to have waned for now. The forward guidance regarding monetary policy is what the markets will be looking out for, as although economic data has improved since the lockdown, there are concerns regarding employment numbers. A number of people remain on the governments furlough scheme and there have been reports of high job losses and redundancies as businesses have struggled to cope during lockdown. Any major announcements from the BoE could result in market movement, so it’s worth following this update on Thursday around lunchtime.

There will also be an Australian Monetary Policy Statement in the early hours of Friday so this is also a time when we could see movement for AUD/GBP, especially after the new lockdown measures down under so this is also worth being aware of. Get in touch to discuss these factors in further detail to see how your upcoming exchange could be impacted.