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Weak Aussie Confidence and Second Wave Lockdown Fears Leave the Pound Australian Dollar (GBP/AUD) Exchange Rate Flat

July 15, 2020 - Written by John Cameron

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted as Aussie Consumer Confidence Tumbles

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained flat on Wednesday, leaving the pairing trading at around AU$1.7984.

The Australian Dollar remained muted against GBP today after the latest consumer confidence data showed consumers were shaken by the prospect of a second wave of coronavirus lockdowns.

Westpac’s confidence data showed confidence regressed back to May’s levels, although this was still higher than April’s lows.

July’s Westpac Consumer Confidence Index fell back to 87.9 from an earlier 93.7.

Confidence in the economy took months to build back up, but mere days to destroy after Victoria imposed another six-week lockdown. Growing confidence due to the easing of coronavirus lockdown restrictions was dealt a huge blow.

Confidence is still negative, with the latest data showing sentiment slumped by -6.1%.

According to Westpac’s Chief Economist, Bill Evans:

‘The drop in confidence reverses all of last month’s impressive gain, taking the index back to the weak levels seen in May but still leaving it 16% above April’s extreme low of 75.

‘[There] looks to have been a substantial loss of confidence around the ability to contain the virus permanently, limiting the extent to which the economy can return to business as usual.

‘Certainly, the renewed outbreak points to a slower and more difficult path ahead for the foreign education, hospitality and tourism sectors all of which may see longer lasting restrictions even if the latest outbreak is successfully contained.’

Sterling (GBP) Flat despite Unexpected Pick Up in Inflation

The Pound remained under pressure during today’s session despite data showing inflation unexpectedly picked up last month.

Rising prices for high-demand computer consoles during the coronavirus lockdown boosted the Consumer Price Index. This saw CPI rise by 0.6% in June following May’s 0.5% increase despite economists expecting inflation to slide.

In a statement, the Office for National Statistics said:

‘It is possible that prices have been influenced by the coronavirus (COVID-19) lockdown changing the timing of demand and the availability of some items, particularly consoles.

‘However, it is equally likely to be a result of the computer games in the bestseller charts.’

Sterling struggled today as analysts said the currency faced further weakening due to the economic damage caused by the coronavirus crisis and Brexit.

According to MUFG’s head of research, Derek Halpenny:

‘From an FX perspective it is always about the relative and we would argue that the relative macro position for the UK is looking grimmer than most other major economies that will lead to further Sterling weakness ahead.

‘With the Brexit impediment thrown in on top, Sterling will increasingly be viewed as part of the solution in providing stimulus through further depreciation ahead.’

Pound Australian Dollar Outlook: Australia Unemployment Rate in Focus

Looking ahead, the Australian Dollar (AUD) could suffer losses against the Pound (GBP) on Thursday following the latest Aussie employment data.

If the country’s unemployment rate rises higher than expected in June due to the coronavirus pandemic, it will weigh on the ‘Aussie’.

However, Sterling could suffer losses later in the day following the latest labour market statistics from Britain.

If unemployment rises higher than expected in May and June’s claimant count increases, it will leave the Pound Australian Dollar (GBP/AUD) exchange rate flat.

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