The AUD to GBP exchange rate was higher by 0.10% on Friday as traders still remain uncertain about the next direction for the pair. Higher inflation in the UK versus stagnant Aussie jobs in the last 48 hours has failed to give further clarity on the exchange rate outlook.
AUDGBP is trading at 0.5655 and yesterday’s gains in the pound, alongside the data releases could see some mild strength continue in sterling.
Australian Economy Focused on Further Stimulus?
A recent article in News.Co.Au said of the economic outlook: “The future of our economy is riding on an expensive strategy that’s wiped out the annual budget – but there’s no way of knowing if it will actually work.”
The analysis goes onto highlight that around $300 billion in support is currently flowing through the economy. The 2020-21 budget is allocating further support measures of $507 billion. The current level of government support amounts to 60% of the federal budget in 2018-19.
The issue for all developed nations is what they are expecting to achieve with all of these hyper-stimulus spending commitments. The central banks committed almost $15 trillion in support following the global crisis of 2008-09 and economies such as the EU were trapped in a low growth, deflationary spiral. The irony is that the virus has saved these economies through the massive stimulus efforts, which could show up when economies reopen. The problem that we will face is how to pay that stimulus back, while also seeing meaningful growth.
Ultra-low interest rates have saved the day but it’s unknown if the central bankers can keep a lid on that forever. Pension funds are unable to get a return on bonds and this has led to them moving into stocks and other assets, which are also being pumped higher by stimulus.
Australian Employment a Bright Spot for the Week
Australia’s economy saw a boost from the lower unemployment rate yesterday. The jobs for the month came in as expected for the month at 50k which was a mild disappointment, but it is moving in the right direction. The Australian economy should also continue to perform well as the states are opened back up for business. Government are still insisting on travel bans into the end of 2021 or 2022 and there will be little respite for the travel industry.
The pound could be pressured by reports that Germany is proposing a travel ban in light of the recent spread of a new virus strain. Chancellor Merkel discussed the measure in a virtual meeting of EU countries and this would see further ‘protectionist’ efforts, following the issues with the French border.
The AUD to GBP rate in the near-term has a higher-end target at 0.5730 and on the downside, it may move to 0.5600. The pair is getting ready for a move out of that range soon.
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