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GBP to AUD Exchange Rate Recovers Most of September Losses as ‘Aussie’ Continues to Tumble

September 24, 2020 - Written by Ben Hughes

Despite Britain’s fresh coronavirus restrictions this week, the British Pound to Australian Dollar (GBP/AUD) exchange rate has been climbing all week. This comes as the Australian Dollar is throttled by the market’s aversion to risk and trade-correlated currencies, as well as speculation of a more dovish Reserve Bank of Australia (RBA). The Pound, on the other hand, is firming as investors await upcoming news from the UK Treasury on fiscal policy to tackle the coronavirus pandemic.

Since opening this week at the level of 1.7718, GBP/AUD has been trending with an upside bias. GBP/AUD has put in significant gains as the Pound benefits from Australian Dollar weakness.

As of Thursday, GBP/AUD has recovered most of this month’s huge losses and trends near a high of 1.8123. It is now just a cent below the highs lf over 1.82 seen at the beginning of the month.

GBP Exchange Rates Climb as Markets Digest Fiscal Support for UK Jobs, Businesses

Investors have been buying the Pound back from lows in recent sessions, despite the threat of the coronavirus pandemic having a bigger impact on Britain’s economy in the coming months.

Hopes that less strict coronavirus measures would stave off the pandemic spread, as well as lingering optimism on UK-EU Brexit negotiations, both helped the Pound to recover.

The primary cause for the Pound’s gains today though, was news from UK Chancellor Rishi Sunak over how UK jobs and businesses would be supported through the second wave of coronavirus infections.

Sunak announced a new job support scheme to help businesses through the second wave. His plan, seen as a replacement to the furlough scheme, will make it easier to have employees working shorter hours.

For the hours the employee is not working, they will be paid 77% of their usual pay, in an effort to prevent job losses.

The Pound’s benefit from the news was limited though, as many uncertainties remain. According to Jonathan Geldart, Director General at the Institute of Directors:

‘However, at first blush it’s not yet clear how much the job support scheme will help hard-pressed firms hold onto staff. The chancellor may also have missed a trick by not combining the Scheme with measures to encourage wider job creation, for instance by lowering employment costs through reduced employers’ NICs.’

AUD Exchange Rates Continue to Slump on Risk-Aversion and RBA Bets

The Australian Dollar has seen broad weakness in the past week, and has been one of the worst-performing major currencies on the market.

It comes as investors become less and less willing to hold onto currencies correlated with risk and trade sentiment.

The Australian Dollar has been among the most appealing risk-correlated currencies amid the coronavirus pandemic, but in recent weeks its appeal has evaporated.

Investors have been anxious that a second wave of coronavirus infections is worsening around the globe. This is leading to a surge in demand for safe havens, like the US Dollar, and losses in riskier currencies like the ‘Aussie’.

On top of market risk-aversion though, the Australian Dollar has also been weighed by fresh fears that the Reserve Bank of Australia (RBA) is about to become more dovish on monetary policy after months of surprising resilience.

According to Bill Evans, Chief Economist at Westpac:

‘The theme is likely to be, as we saw in March, a Team Australia moment where the Reserve Bank is directly supporting a bold Federal Budget,

The prospect of the RBA sitting back to assess the Budget, which has been seen as the norm in previous years, is not appropriate for these unique times.’

GBP/AUD Exchange Rate Forecast: Coronavirus Remains the Focus

As Britain’s coronavirus situation continues to develop, news and reaction is likely to continue to drive Pound exchange rates.

If markets optimistically digest UK Chancellor Rishi Sunak’s new job support scheme, the Pound could see more solid gains and hold its ground.

On the other hand though, if the UK government shows signs that a second lockdown is becoming more likely, the Pound could see fresh losses.

Of course, the Australian Dollar may be more likely to weather market risk-aversion if the Australian coronavirus outlook improves as well.

Some key upcoming data due next week, including UK growth rate and Australian retail sales results, may prove influential as well.

With September heading to an end, the Pound to Australian Dollar exchange rate could also be influenced by UK-EU Brexit relations.
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