Pound Australian Dollar (GBP/AUD) Exchange Rate Benefits from Chinese Factory Profits Slump

March 27, 2020 - Written by Frank Davies

STORY LINK Pound Australian Dollar (GBP/AUD) Exchange Rate Benefits from Chinese Factory Profits Slump

Global Growth Worries Bolster Pound Australian Dollar (GBP/AUD) Exchange Rate

Fresh concerns over the global growth outlook helped to keep the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate on a positive footing ahead of the weekend.

As Chinese factory profits saw their largest slump on record in the first two months of the year this stoked renewed anxiety over the health of the wider global economy.

This put pressure on the risk-sensitive Australian Dollar, which also commonly functions as a market proxy for sentiment towards the Chinese economy.

Even so, as the Covid-19 infection rate has already stabilised and begun to tail off in China there are hopes that March could see the beginnings of a recovery in economic momentum.

As a result, AUD exchange rates only saw limited losses across the board on Friday as fears of a deeper global recession showed signs of easing.

Fresh Covid-19 Anxiety Limits GBP/AUD Exchange Rate Upside

News that Boris Johnson had tested positive for Covid-19 put a temporary dampener on GBP exchange rates, meanwhile.

The possibility of political disruption saw the Pound stumble losing some of the positive momentum it had gained in the latter half of the week.

While the UK economy still appears on track to shed significant activity in the first quarter of 2020 this was not enough to keep the GBP/AUD exchange rate from trending higher.

Unless investors see reason to expect a further deterioration in the Covid-19 situation the downside potential of the Pound should remain limited in the near term.

Australian Dollar Vulnerable to Business Confidence Decline

Tuesday’s ANZ business confidence index could see the Australian Dollar shedding further ground against its rivals.

Forecasts point towards the index dropping deeper into negative territory in March, reflecting the disruption stemming from the pandemic.

As long as confidence within the Australian economy continues to deteriorate support for AUD exchange rates is likely to prove limited.

The mood towards the Australian Dollar may also sour in response to the latest Chinese manufacturing PMI, with markets wary of the potential for another sharp monthly decline.

However, if the Chinese economy can demonstrate signs of recovery in the face of an easing Covid-19 outbreak this could encourage a fresh bout of market risk appetite.

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