The GBP to AUD rate has continued to recover from the lows seen in July when the pair hit 1.78 which is not far from its annual. The pair are currently trading in the mid 1.82’s so there has been around a 4-cent gain for the pound since the pair hit their 2020 low around 3-weeks ago.
The gain of over 2.5% for sterling has occurred due to a combination of better than expected economic data releases for the pound and also weakness to the Aussie dollar, and there are now some concerns surrounding the Aussie dollar moving forward for a number of reasons.
Yesterday Australia suffered its darkest day in regards to the COVID-19 virus as sadly there were 21 deaths, and all of these took place in the Victoria region which has been in the headlines recently due to the lockdown measures implemented to try and stem the spread of the virus. After previously being held up as a model nation in terms of how to contain the spread of the virus, there have now been a number of breakouts with New South Wales also reporting a number of new cases, and this is taking place as many other nations are witnessing declining numbers of cases so these breakouts down under are resulting in concerns for the Australian economy.
UK Officially Enters Recession
The numbers down under remain tame though in comparison to the impact of the virus in the UK. As a densely populated nation with its capital city being an international hub, the UK has been one of the most impacted nations by the virus and the UK government is currently doing their best to get the economy firing on all cylinders again which UK Chancellor Rishi Sunak’s ‘Eat Out To Help Out’ scheme being a prime example. Economic output measured in the form of Gross Domestic Product (GDP) figures were released yesterday for the period of April to June and confirmed that the UK economy has fallen into its deepest recession since records begun. GDP growth has dropped by 20.4% and the second consecutive quarter of economic decline confirms that the UK is now in recession.
Interestingly the FTSE 100 climbed to its highest levels in over three weeks yesterday as the GDP figures failed to concern investors as they were expected, but a concern for the UK moving forward will be that the economy has taken a bigger hit than many other economies within developed nations.
Moving forward, this kind of data could impact the pound’s value although at the moment the pound is climbing against many major currency pairs including the Aussie dollar. The reason for the drop has been blamed on the UK being a services based economy, and as the economy is now opening back up and the ‘Eat Out To Help Out’ scheme is in full swing, there is expected to be a jump in economic output in the following quarter so the next time GDP figures are released we could see more of a market reaction for the pound as this time it was quite subdued.
Economic data out of the UK and Australia is pretty much non-existent today although Reserve Bank of Australia’s Governor, Philip Lowe will be speaking later tonight UK time and if any forward guidance regarding monetary policy down under are touched on we could see some market movement for GBP AUD exchange rates.
Data is also light tomorrow with no key releases expected so I would expect sentiment to continue to drive GBP AUD exchange rates, especially news around how COVID-19 is spreading and the chance of further lockdown measures.
Looking longer term I also think that Brexit talks are likely to weigh on the pound’s value as this year is key for how the process of leaving the EU transitional arrangement will pan out. At this stage no extension is expected, as June was the UK’s last chance to request one. Trade talks are scheduled to continue up until early October which is important as there is an EU Summit mid-October and hopes are that trade deals are in place by then so that the new laws can be written into law in time for 2021 when the current transitional period has concluded.
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