The Pound to Australian dollar exchange rate rose yesterday, with the rate fluctuating around £0.508 as China’s COVID-19 outbreak persists to weigh heavily on the market’s risk appetite, thus sending the risk-sensitive AUD lower. The disease continues to keep the AUD in a stranglehold as news shows little signs of a let-up. Recent headlines from Tuesday reported that areas near Milan and Venice in Italy have been quarantined in direct response to outbreaks in the European country. Meanwhile, the pound’s strength was boosted, which saw the AUDGBP interbank exchange rate fall by -0.6%. This came as the GBP benefited from a weaker USD thanks to rising fears that the US Federal Reserve (Fed) could cut its interest rates next month.
AUD falls hard on coronavirus fears
Moh Siong Sim, an analyst from the Bank of Singapore noted that overnight on Monday, there was a bit of a panic over the risk of the virus going global. He noted that the market is now back to assessing how the situation is going to pan out from hereon-in, suggesting the market will take it as it comes. With China being one of Australia’s largest trading partners, rising fears over the virus’s effect on the world’s largest economy has weighed heavily on the AUD since the outbreak began at the end of 2019. As a result of the negative impact on the economy, the Australian dollar has suffered from rising odds that the Reserve Bank of Australia will have no choice but to cut its interest rates as the economic outlook looks dreary.
Pound benefits from USD weakness and sends the AUDGBP rate spiralling
Meanwhile, for GBP, it has benefited from the US dollar’s recent losses. After rate cut bets increased on the Fed making an interest rate cut next month, the US dollar sunk as investors got the rate cut jitters. The fears of the rate cut come ahead of the potentially negative effect that the coronavirus will have on the American economy in months to come. The AUDGBP exchange rate fell by -0.6% on Tuesday as a direct result of the pound strengthening.
Looking ahead, the coronavirus will continue to steal the spotlight with any developments set to shift the currencies in question. Any signs of contamination slowing down in China would see the risk-sensitive Aussie receive a boost.
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