Pound Australian Dollar (GBP/AUD) Exchange Rate Soars as Risk-Off Market Moods Weighs on ‘Aussie’

February 28, 2020 - Written by John Cameron

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Soars as Risk-Off Market Moods Weighs on ‘Aussie’

GBP/AUD Exchange Rate Rises by 1% as Coronavirus Fears Weaken Australian Dollar

The Pound Australian Dollar (GBP/AUD) exchange rate soared by 1% today, with the pairing currently trading around AU$1.978 as the risk-sensitive ‘Aussie’ continues to struggle over fears of the coronavirus (Covid-19) weakening the global economy.

The Government of Victoria, Australia, warned that it is estimated that ‘in a worst-case pandemic influenza scenario, Australia’s [GDP] could suffer a decline of greater than 10%’.

With China being Australia’s largest trading partner, fears of a short-term negative impact on the Chinese economy is leaving many ‘Aussie’ investors wary of a similar downturn for Australia’s economic growth early this year.

Petr Krpata, an Analyst at ING, was also downbeat in his analysis:

‘The Australian Dollar has been the key G10 underperformer in the past few days as virus-related fears rose again. Despite yesterday’s stabilisation in risk sentiment (triggered by a recovery in equities), selling pressure on AUD has continued to mount.’

The Australian Dollar (AUD) is likely to remain under pressure into the weekend as markets continue to gauge the economic impact of Covid-15.

GBP/AUD Exchange Rate Soars on Improving UK Consumer Confidence

The Pound (GBP) rose against the weaker Australian Dollar (AUD) after the UK GfK consumer confidence gauge improved the third straight month in a row in February.

Joe Staton, Client Strategy Director at GfK, was measured in his analysis, however, saying:

‘Although the index remains south of positive, the trajectory remains upwards. The only 'known unknown' is the potential impact of coronavirus on behaviour, confidence and spending patterns. This is a developing story, watch this space.’

The GBP/AUD exchange rate performed well today with UK being more insulated from the economic impact of the coronavirus on the global economy. As a result, the Sterling has benefited against risk-correlated currencies like the ‘Aussie’, which is far more at risk to a slowdown in the Chinese economy.

Analysts at MUFG were downbeat about their forecast for the Pound, however, commenting:

‘While country-by-country tallies of COVID-19 shows an un-alarming total of 15 in the UK, its near 5% current account deficit means a tightening of financial market conditions leaves currencies like the pound vulnerable to the downside.’

GBP/AUD Outlook: ‘Aussie’ to Remain Subdued on Covid-19 Fears

Pound (GBP) investors are looking ahead to February’s UK Markit Manufacturing PMI, which is expected to hold at 51.9. Any surprise jump in the gauge, however, would prove GBP-positive.

AUD traders, meanwhile, will be awaiting Sunday’s release of Australia’s AiG Performance of Manufacturing Index for February. Any signs of improvement in Australia’s manufacturing sector would benefit the AUD/GBP exchange rate.

However, with coronavirus dominating market attention, we are unlikely to see the ‘Aussie’ make any significant gains until further containment of the virus is officially announced. As a result, we could see the Australian Dollar continue to struggle from risk-off market mood.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts