Australian Dollar’s Rebound Could Be Cut by RBA as GBP Remains Supported Following Fiscal Stimulus

GBP AUD Lower After PMI Data for UK and Australia

The Australian dollar has performed much better in the recent days despite the ongoing coronavirus which hindered the currency for many weeks. Now trading as one of the best performing currencies of the past week, AUD could be under threat as analysts at Westpac have questioned the viability of the rally and warned that the Reserve Bank of Australia could yet consider quantitative easing measure in order to boost the economy. Meanwhile, GBP’s outlook continues to show support for the currency. With the UK government unveiling their new HS2 (high speed rail) network plans, the government looks to be opening its purse as the UK receives a fiscal stimulus. But GBP will remain under the thumb of the Brexit trade negotiations leaving the potential for gains capped.

AUD gets back to positive trading, but RBA cuts could force the currency lower

In the past week, AUD has managed to shrug off the worries of the coronavirus in order to be labelled as one of the weeks top performers. The AUD’s recent strength came after investor fears begin to fade over the coronavirus and increasing bets that the antipodean central banks will not cut interest rates soon. The Australian dollar’s strength has seen the GBP/AUD exchange rate decline nearly 3% from its January highs, following an improved risk tolerance from the investor market.

However, analysts at Westpac have questioned the viability of the rally and warned that the RBA may consider introducing QE methods in the near future. On the other hand, the RBA has suggested that it won’t be cutting rates again until at least August 2020. But with Westpac’s forecast suggesting that slow growth in the first half of 2020 will lead to higher unemployment and could prompt two more rate cuts from the RBA by the end of August, the outlook for the AUD may not play out how the RBA would like.

GBP Remains Supported After Fiscal Stimulus, but Will Be Capped by Brexit Uncertainty

For GBP, it remains supported in the market after the UK government announced its plans for the HS2 high-speed rail project. The project has been introduced in order to aid and bring about a significant fiscal stimulus to the country. The pound rose for a fourth consecutive day against many of its major rivals yesterday amidst ongoing expectations for an improvement in UK economic growth following the General Election outcome and an increase in government spending. However, despite the UK’s positive boost and lift in momentum, the currency will remain capped by the Brexit negotiations. The major swings in the currency will likely formulate around the EU trade deal for many months to come, with any negative press going against the GBP’s strength.

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