The AUDGBP exchange rate was- 0.68% lower on Tuesday and is finding no friends as the pair moved to trade below the 0.5300 level for the first time since May 2020. The UK is being boosted by a seventh day of lower virus cases, while the Aussie dollar reels from the latest lockdowns.
The AUD to GBP pair trades at 0.5298 with Australian inflation figures released on Wednesday.
Sydney lockdown extended by a month
The AUD versus GBP was slammed lower after news that Sydney’s lockdown will be extended by four weeks after the state of NSW recorded 172 cases of COVID-19. The move has disappointed analysts who expected the state to reopen, alongside Victoria, which got the green light to lift restrictions on Wednesday.
NSW treasurer Dominic Perrottet was also keen for the government to reinstate the JobKeeper furlough scheme, saying:
“The Disaster Payment excludes people who are receiving other forms of Commonwealth assistance. It shouldn’t. In fact almost 200,000 people in NSW fall into that category, including 77,300 JobSeeker recipients, almost 34,000 people on Youth Allowance… Many of these are young people who can’t yet get the vaccine, can’t work, can’t get on with their studies, and now they’re being told the income they have lost won’t be topped up like everyone else’s. This is truly the generation at risk of becoming the new forgotten people.”
Extending the JobKeeper would be a retreat backwards and would mean yet more government assistance and this is crippling the Aussie rebound and the government’s finances after so much hope for the country.
Aussie inflation set to surge above 3%
Markets have been focused on inflation recently with a surge in US consumer prices, while others such as UK and Canada have also posted hot prices.
Today sees Q2 inflation for Australia and unlike US data, Australian inflation only comes out once every quarter so this will be the first update for markets since April.
CBA economist Gareth Aird has given investors an update on what to expect. Australia is predicted to follow the path of the US, where strong employment and supply chain bottlenecks align to push inflation higher.
“Our forecast is for the headline CPI to increase by 0.7% in Q2 21, which would see the annual rate spike to 3.8%,” Aird said.
But the analyst doesn’t expect the RBA to take much notice of the figure, saying:
“Near term monetary policy decisions will be linked to the COVID-19 situation and any upside surprise on the CPI is unlikely to feature in the Board’s August policy deliberations,” Aird said.
The AUDGBP has been under intense selling pressure and a higher inflation print is unlikely to change that outlook. The RBA has been stubborn about postponing rate rises until 2024 and the latest lockdowns will take the sting out of some of the inflation pressures.