Australian dollar exchange rates seem to have stalled once more with it’s major currency counterparts capitalising on weaker investor appetite for commodity-based currencies. Against the euro, the Australian dollar has been unable to break back above the 0.61 mark since the end of June and has arguably been stuck in a downward trend since. Equally against the pound, the Australian dollar hasn’t been able to achieve the record breaking 0.56 levels we saw at the end of last month, despite another long run of troublesome data UK side. That being said, AUD GBP continues to trend in and around some of the high levels we have seen in well over a year and considerably better than the rates seen back at the height of the pandemic (0.48 on interbank rates). Those looking to buy pounds with Australian dollars may want to look at the options and make sure their exposure is managed just in case new indicators continue to drag the AUD GBP pairing south.
Indeed, as fears of a second wave of COVID-19 rise, the probability of future lockdown measures being reinstated also increases. We’ve already started to see how devastating the first wave might prove to be on even the worlds largest economies, and it may be the prospect of another round which is causing interest in the Australian dollar to weaken slightly, particularly after Australia only recently suffered it’s highest daily death count of the pandemic so far. With lockdown measures already in place in Victoria, the concern now is whether or not Australia will be able to tackle the spread of the virus before wider restrictions are enforced. This naturally is already having an effect on business confidence with consumers growing reluctant to spend as the uncertainty grows. It will be interesting to see how Thursday’s business confidence release from the manufacturing sector comes out. This evening’s report from Westpac might act as a precursor to this. The Reserve Bank of Australia (RBA), whose latest minutes were released last night, have been quick to communicate that they will do everything possible to help keep the economy’s head above water. Investors might be looking for further proof of this in the Westpac lending conditions report. Should lending conditions worsen, the markets might take the view that it could get harder for Australian businesses to keep people employed and maintain sustainable cash flow.
Australia’s Trading Partners Also Adding to the Uncertainty
As a leading commodity-based currency, a percentage of the Australian dollar’s value can often be driven or at least influenced by the stability of Australia’s leading trading partners. This proved to be a potential anchor back in Spring for Australian dollar exchange rates as COVID-19 took hold of China’s manufacturing markets, demand for Australian exports slumped and contributed to Australia’s Gross Domestic Product (GDP) contracting. A similar situation appeared to have happened with another of Australia’s top trading partners as Japan registered it’s largest GDP fall in over 40 year, shrinking by nearly 8% between the months of April and June of this year. Singapore also reported a drop of around 40% of the economy in Q2 which demonstrates the impacts of COVID are proving far worse than initially hoped in some parts of Asia. Tonight’s trade data from Japan could also prove telling and might be a key driver for AUD exchange rates for the rest of the week. If you are holding foreign currency and have an immediate Australian dollar requirement it might pay to get in touch with your account manager to see how these releases might affect your transfer.
As global uncertainty grows it seems there might be more potential for the Australian dollar to weaken in the long run. New Zealand deciding to postpone it’s general elections where voting was due to start in September, could add another layer to this and is a clear indication that more volatility could be expected in the weeks and months ahead across the currency markets.
In the short term however, it might be data UK side that could drive the GBP AUD pairing with a long list of inflation figures due early tomorrow morning. After the recent reports of recession investors will be watching closely for signs of promise and the continued slowing of prices hasn’t necessarily boded well of the UK. If similar signals are posted today sterling might well lose ground across the board, included against the Australian dollar. Something for sterling holders to be consider as the week goes on. You can get in touch using the form below to discuss an upcoming currency transfer and how these factors could impact it.