Pound to Australian Dollar (GBP/AUD) Exchange Rate Falls as Risk Sentiment Improves

April 27, 2020 - Written by John Cameron

STORY LINK Pound to Australian Dollar (GBP/AUD) Exchange Rate Falls as Risk Sentiment Improves

GBP/AUD Exchange Rate Sinks as ‘Aussie’ Buoyed By Improving Market Mood

The Pound to Australian Dollar (GBP/AUD) exchange rate falls by -0.6% today as Australia begins easing lockdown conditions and the risk-sensitive ‘Aussie’ benefits from improving risk sentiment. The pairing is currently trading around AU$1.922.

Nikesh Sawjani, an economist at Lloyds Bank, commented:

‘A broad improvement in risk tone has swept across most major asset classes this morning, led by optimism of an easing in lockdowns around the world. New York Governor Cuomo announced a phased plan to reopen the state – possibly as early as 15 May. Meanwhile across Europe, Italian PM Conte said that the country would begin easing lockdown measures from 4 May, while Spain is expected to follow suit and announce some relaxation from 2 May.’

Furthermore, with Australia unwinding its constraints on the economy, ‘Aussie’ investors are becoming increasingly optimistic that the economy could make a quicker-than-expected recovery.

The Australian Dollar (AUD) has also benefited from rising hopes over Europe’s victory with the coronavirus, with a number of heavily hit nations – including Italy and Spain – now tentatively opening up their economies.

Pound (GBP) Falls Despite Boris Johnson’s Return

The Pound (GBP) failed to gain on the stronger ‘Aussie’ today despite Prime Minister Boris Johnson’s return to Downing Street. In a TV statement this morning, the Prime Minister warned that the Government would not be easing lockdown restrictions for fear of a ‘second peak’.

However, Boris Johnson was notably optimistic about the UK’s progress in its battle with the virus, saying that we may be turning the tide on Covid-19 in the coming weeks.
Mr. Johnson said:

‘I can see the long-term consequences of lockdown as clearly as anyone, so yes, I entirely share your urgency.’

‘It is the government’s urgency. And yet we must also recognise the risk of a second spike, the risk of losing control of that virus and letting the reproduction rate go back over one.’

The GBP/AUD exchange rate also failed to benefit from Cabinet Minister Michael Gove’s comments that a UK-EU Brexit deal could be acquired faster-than-expected due to the coronavirus crisis.

Mr. Gove commented:

‘I think the Covid-19 crisis, in some respects, should concentrate the minds of EU negotiators, reinforcing the vital importance of coming to a conclusion.’

GBP/AUD Forecast: Could Weak Australian Inflation Send ‘Aussie’ Spiralling?

Australian Dollar (AUD) investors will be awaiting tomorrow’s release of the Reserve Bank of Australia’s (RBA) Trimmed Mean CPI report for the first quarter. If Australia’s inflation gauge significantly falls below consensus, however, then we could see ‘Aussie’ fall.

The Australian Dollar (AUD) will remain sensitive to risk sentiment this week, with any sudden signs of global economic turmoil proving AUD-negative.

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