Melbourne Lockdown Sends GBP to AUD Exchange Rate Higher

AUD GBP Trades Above 0.5300 Ahead of Consumer Confidence

GBP to AUD rose to 1.8361 by close of trading as the Aussie dollar continued its losing streak with another 0.25 percent drop during yesterday’s trading. The Aussie dollar has now lost 1.71 percent against the pound in the past week and 2.22 percent in the past month.

The move has been led by the lockdown in Melbourne, which is a significant blow to the economic outlook for the Australian economy. Daniel Andrews, the Victorian Premier has implemented a Stage 4 lockdown which will involve the shutdown of certain industries substantially denting the prospect of a v-shaped recovery for the Australian economy.

COVID-19 has already caused unprecedented damage to the Australian economy although with prime minister Scott Morrison’s quick response to the crisis, the infection and death numbers were limited Prime minister Morrison launched financial support on a scale never seen before. However, with Melbourne now on lockdown the Australian government will need to consider how much more money to pump into the state of Victoria to prevent an even more catastrophic situation.

Melbourne is the second largest state in Australia in terms of population and economic output and has now been in lockdown for almost one month. The Australian government had hoped to start lessening the financial job keeper and job seeker supplements by late September but given this latest development, it is difficult to see how this will be possible.

Daniel Andrews has said there will be 3 groups; the first group will be businesses that can continue as usual such as groceries, supermarkets and other outlets that offer essential everyday products. The second group of businesses will be able to continue albeit at a reduced rate. And the third group of businesses will be required to shut their doors until further notice. It is not entirely clear, which businesses will fall into each category, but those that involve a higher level of non-essential public contact will likely be those hardest affected.

One of the big problems that Melbourne faces is the number of shift workers in factories, many of whom are conscious that if they do not turn up for a shift, they may find themselves out of work. As such, many continue to go to work even when they feel sick. The local government has offered people $300 to remain at home between taking a test and the result but this does not help if an individual loses their job.

Victoria’s service, manufacturing, and hospitality sectors are all looking at vast damage as the lockdown prevents people working. It is not known what financial assistance will yet be offered but state resources are already near capacity. Thus, it is therefore likely that a bailout will fall at the feet of the Australian government who can borrow at historically low interest rates.

Will GBP to AUD Continue to Rise?

Since the start of the COVID-19 crisis pound to Aussie dollar has reached a high of 2.0482 and touched a low of 1.7702, a difference of more than 12 percent. The Aussie dollar is hugely open to investor’s risk appetite and has been one of the most volatile major currencies over the past few months.

In the height of COVID-19 uncertainty, investors moved away from the Aussie and pound to Aussie dollar soared well above the 2 dollar level but as major central banks intervened in the crisis and took the “we’ll do whatever it takes to save our economy” approach, some confidence was restored and pound to Aussie dollar drifted lower. This was supported by a relaxation of lockdown measures in most major economies and a lowering number of infections and death toll.

Many had hoped we had turned a corner and that there would be a return to growth but with unprecedented slumps in Gross Domestic Product (GDP) and the prospect of a second wave as we enter the autumn and winter months, markets once again have the jitters.

Whilst lockdowns continue and uncertainty remains, the Aussie dollar will struggle to make gains as investors shun the risk-based currency. Unfortunately, for Aussie dollar sellers, the economic outlook for the US remains uncertain as investors await further updates on how the American economy is coping. Recent US GDP data showed an annualised drop of more than 32 percent in the US, not encouraging for an increase in risk appetite. Hence, traders are unlikely to want to pump money into a risky, high fluctuating commodity-based currency such as the Aussie in times of high uncertainty. Thus, the Aussie dollar is likely to remain weaker until the world can get a grip on COVID-19.