Pound to Australian Dollar (GBP/AUD) Exchange Rate Dips as Risk-On Markets Buoy ‘Aussie’

May 26, 2020 - Written by John Cameron

STORY LINK Pound to Australian Dollar (GBP/AUD) Exchange Rate Dips as Risk-On Markets Buoy ‘Aussie’

GBP/AUD Exchange Rate Falls as Risk Sentiment Improves on Covid-19 Vaccine Hopes

The Pound to Australian Dollar (GBP/AUD) exchange rate fell by -0.3% today, with the pairing currently fluctuating around AU$1.85.

The Australian Dollar (AUD) has benefited from risk-on markets today as hopes for a coronavirus vaccine have risen after the American biotech company Novavax revealed that it had started the first human study of an experimental Covid-19 vaccine.

Dr. Gregory Glenn, Novavax’s chief researcher, commented:

‘We are in parallel making doses, making vaccine in anticipation that we’ll be able to show it’s working and be able to start deploying it by the end of this year.’

As a result, the risk-averse ‘Aussie’ has benefited from growing hopes that the global economy could stage a faster-than-expected recovery.

However, some Australian Dollar (AUD) investors are remaining cautious today as US-China trade tensions are likely to erupt. This follows last week’s spat between the two superpowers after US President Donald Trump criticised Beijing’s handling of the coronavirus crisis.

Furthermore, after China opted not to set a gross domestic product target for 2020, ‘Aussie’ investors have become concerned that the world’s second largest economy – and Australia’s largest trading partner – could suffer significantly from the Covid-19 pandemic.

Pound (GBP) Suffers Despite BoE Ruling Out Below-Zero Interest Rates
The Pound (GBP) failed to gain against the ‘Aussie’ today despite the Bank of England’s (BoE) chief economic adviser effectively ruling out the likelihood of negative interest rates any time soon.

The BoE’s Andy Haldane commented:

‘To be clear, reviewing and doing are different things and currently we are in the review phase and have not reached a view remotely yet on the doing.’

Consequently, Sterling traders heaved a sigh of relief after last week’s fears of a below zero interest rate. This follows the BoE’s Governor’s comments that the bank had not ruled it out as an option to stimulate Britain’s flagging economy.

Meanwhile, in UK economic news, today saw the release of the CBI’s latest retail sales report, which tumbled to -50%.

Rain Newton-Smith, the CBI Chief Economist, commented on the data saying ‘the retail sector is at the sharp end of the crisis, with many businesses up against it, adding:

‘The government’s support packages are making a real difference, with more shops reporting that jobs have been furloughed, rather than lost.’

GBP/AUD Forecast: Could US-China Trade Tensions Weigh on the ‘Aussie’?

Australian Dollar (AUD) investors will be awaiting Wednesday’s publication of Australia’s Construction Work Done report for the first quarter. If this confirms consensus and falls by -1.5%, then we could see the ‘Aussie’ sink.

Meanwhile, if US-China trade tensions flare up again this week, we could see the Australian Dollar (AUD) suffer from a sell-off of risky assets.

The GBP/AUD exchange rate will mainly be driven by coronavirus developments this week, with few influential UK data releases on the horizon. However, if the UK government announces an easing of lockdown restrictions, then we could see Sterling rise on hopes for Britain’s economic recovery.

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