Despite some strong Australian data published today, the Australian Dollar was unable to sustain much of a recovery from this week’s tumbles and the British Pound to Australian Dollar (GBP/AUD) exchange rate continued to trend high.
Since opening this week at the level of 1.9154, GBP/AUD has been trending higher due largely to global market concerns over a coronavirus outbreak spreading in China.
GBP/AUD touched on a monthly high of 1.9350 yesterday, and while strong Australian data has helped the ‘Aussie’ to rebound slightly the pair is still trending high in the region of 1.9294 at the time of writing.
The primary cause of this week’s GBP/AUD advances has been due to broad Australian Dollar selling.
As the Australian Dollar is strongly correlated to market risk and trade-sentiment, as well as often being used as a proxy for Chinese economic sentiment, the Australian Dollar saw the brunt of market concern about the spreading coronavirus.
The Australian Dollar plunged Monday and remained weak yesterday as concerns deepened that the coronavirus could weaken global economic performance in the coming quarters.
The Australian Dollar slumped even against a weak Pound. Sterling has been weakened this week by lingering Bank of England (BoE) interest rate cut speculation and concerns about Britain’s future relationship with the EU after Brexit.
In fact, while markets calmed today, risk-aversion is still so broad that the Australian Dollar has been unable to notably recover even despite some stronger than expected Australian data.
This morning, Australia’s key Q4 inflation rate results were published and showed that Australia’s inflation was even higher than expected.
This left markets even more confident that the Reserve Bank of Australia (RBA) would not cut Australian interest rates any time soon. Bets of a rate cut from the RBA next week have largely faded.
Despite the market’s more hawkish RBA outlook, the Australian Dollar failed to sustain much of a recovery due to risk-aversion.
Instead, the Pound to Australian Dollar exchange rate was more easily able to hold its ground and avoid losses. Market anticipation for tomorrow’s Bank of England (BoE) policy decision kept the Pound buoyed, as investors are hesitant to move much on the British currency.
However, the BoE anticipation is largely because markets are uncertain over the tone the BoE could take tomorrow. Bets of a rate cut are around 50/50, meaning there is a strong chance that the bank’s tone could cause a surprise in markets.
If the Bank of England cuts UK interest rates tomorrow, the Pound could plummet and shed much of its recent gains. On the other hand, a more hawkish stance from the bank could help the Pound to firm higher.
As for the Australian Dollar, any fresh developments in the coronavirus outbreak, as well as tomorrow’s Australian export and import price results could cause Pound to Australian Dollar exchange rate movement.