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Pound to Australian Dollar (GBP/AUD) Exchange Rate Dips Despite Rising US-China Trade Tensions

May 29, 2020 - Written by John Cameron

GBP/AUD Exchange Rate Falls as Markets Await Trump’s Announcement on China

The Pound to Australian Dollar (GBP/AUD) exchange rate fell by 0.2% today, with the pairing currently trading around AU$1.85.

The Australian Dollar (AUD) has had some of its gains clipped by rising tensions between the US and China.

This follows US President Donald Trump’s announcement that he would be holding a press conference over Beijing’s handling of the coronavirus outbreak and Washington’s response to the new national securities laws on Hong Kong.

George Magnus, an expert on the Chinese economy at the University of Oxford, explains:

‘If the United States wanted to ensure that Beijing gets the raw end of this deal, so that they felt some pain, restricting Hong Kong’s ability to act as a global financial center would be the way to do it. I’m not saying it would be a good thing, but if you’re in a financial war, that’s the way to do it.’

As a result, the Australian Dollar (AUD) could begin to slide today as risk-sentiment is dampened by rising tensions between the two superpowers.

Pound (GBP) Dips as Boris Johnson Brushes Off Cummings Controversy

The Pound (GBP) struggled to gain against the ‘Aussie’ today despite Prime Minister Boris Johnson’s brushing off the Tory revolt over his chief aide, Dominic Cummings, who broke lockdown rules in April.

Yesterday saw a spokesman for Number 10 say:

‘The police have made clear they are taking no action against Mr Cummings over his self-isolation and that going to Durham did not breach the regulations.

The prime minister has said he believes Mr Cummings behaved reasonably and legally given all the circumstances and he regards this issue as closed.’

Meanwhile, today will see Chancellor Rishi Sunak announce the tapering off the furlough scheme despite rising fears for individuals returning to work.

Today also saw speculation over the Bank of England (BoE) taking interest rates into negative territory to bolster the struggling British economy. As a result, this has left many Sterling traders worried about the economic ramifications in the near-term.

Dominic Bunning, aSenior Strategist at HSBC was less pessimistic, however:

‘Currencies weaken in anticipation of negative rates but the negative impact wanes after delivery. This may be interesting for the likes of GBP and NZD right now, as markets anticipate central banks following this route. But it will be short-lived.’

GBP/AUD Outlook: Could US-China Trade Tensions Weaken the ‘Aussie’?

Australian Dollar (AUD) investors will be looking ahead to Sunday’s publication of the AiG Performance of Manufacturing Index for May. Any signs of this sinking below forecasts would prove AUD-negative.

Meanwhile, Monday will see the release of Australia’s inflation data for May. As a result, we could see the ‘Aussie’ suffer if the Australian economy continues to flag.

Monday will also see the release of the UK’s Markit Manufacturing PMI for May. However, with the figure expected to remain deeply lodged in negative territory, we could see the GBP/AUD exchange rate fall.

The GBP/AUD exchange rate will remain sensitive to the UK’s coronavirus situation next week. Any improvement in Covid-19 infection rates would prove Pound-positive.

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