For the risk-sensitive Australian dollar, Wednesday provided the currency with an edge higher which took it higher against most rivals as the Aussie government prepared to announce a major stimulus package in the hopes of supporting Australia’s economy through the coronavirus outbreak. However, analysts’ opinions on the Australian outlook remain divided as the future looks unclear. Nevertheless, the GBP/AUD exchange rate was down -0.57% lower at 1.9738 following the boost to the Australian dollar. But constant pressure remains pressed upon the currency by the coronavirus outbreak which has kept the investor market firmly in a ‘risk-off’ position and looks to trouble the currency up ahead.
RBA Announce Relief Package, AUD Rises on Optimism of Support
The Australian dollar rose against all major currencies apart from NZD and SEK on Wednesday following the Australian Prime Minister Scott Morrisson announcing that the Aussie government will provide relief for businesses and households as they navigate the coronavirus crisis. The virus risks a major disruption to employment as well as the supply of goods and customers. A situation like this has already been witnessed in Wuhan, China – the epicentre of the coronavirus outbreak.
Regarding the size of the stimulus package, The Australian has reported that it could be worth up to $18 billion with other reports of $20 billion. Both amounts, if either are true, amount to being close to 1% of the Australian GDP. The stimulus response came not long after the Reserve Bank of Australia’s Deputy Governor Guy Debelle highlighted that the coronavirus could impact the tourist figures as well as foreign student numbers. If this was the case, as much as 0.5% could be lost from the first quarters GDP value from these two categories alone, before impact elsewhere in the economy is taken into consideration.
Quantitative Easing Could Be Implemented If Necessary, but Fiscal Stimulus Appears to Be Enough for Now
The RBA also noted that it would be willing to implement quantitative easing methods within the economy if it becomes necessary to do so. Surprisingly, this didn’t affect AUD on the day, but many in the market note that it could have serious consequences for the currency if QE is introduced. However, with central bank support limited by the earlier low level of cash rates and bond yields, preventative fiscal support may be the banks best bet against the long-lasting, virus-related damage to economies.
Some countries like Australia, New Zealand and the UK are all implementing some form of fiscal stimulus, which has seen all three currencies rise in the markets. While other economies like the United States have decided to not do so and have seen their currencies lag behind notably.
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