Aussie Dollar Weakens on Back of 22% Economy Crash Forecast

GBP AUD Consolidates with UK Employment Due

The pound surged more than 1.21 percent against the Aussie dollar during yesterday’s trading as GBPAUD (interbank market) touched 2.0325, its highest point since the 19th March. The Aussie dollar lost ground after the Organisation for Economic Cooperation and Development (OECD) said that Australia’s economy could suffer a 22% short-term crash due to the pandemic lockdown. The Aussie was further compounded as global coronavirus cases passed 800,000 and investors shunned risk-based currencies.

Bloomberg Economics has also said that Australia’s economy is expected to contract by 10%, the biggest drop since 1931. As the coronavirus pandemic pushes Australian businesses and consumers to its limits, Australia will incur its deepest recession for 90 years. Gross Domestic Product will crash by 10% in the first 9 months of 2020 before a slow recovery in Q4. However, it’ll be 3 years before GDP returns to a pre coronavirus level.

Prime minister Scott Morrison has promised to spend a further AU$130 billion over 6 months in a bid to protect Australian’s jobs and with the recent slashing of interest rates by the Reserve Bank of Australia, the Australian government is doing all that it can to deal with the catastrophic consequences of this pandemic.

The UK Economy Stagnated in Q4 of 2019

The quarter began with Brexit turmoil and finished with a Tory landslide victory in the General Election. Many had hoped political stability would bring about more certainty for 2020 but the coronavirus epidemic has left the UK economy in tatters. The Centre for Economics and Business Research (CEBR) predicts UK GDP will fall by 15% in Q2, the largest quarterly fall since 1997, when records began. A 0.5% contraction is also expected for the first 3 months of the year. To put this into context, the largest fall since 1997 was 2.2 percent during the 2008 financial crisis.

UK Lockdown

Businesses have been ordered to close and consumers are only buying essential items. The CEBR expects unemployment to rise sharply and house prices to crash by 13% over the year. The Bank of England has slashed interest rates to an all-time low and promised to drive stimulus into the economy via quantitative easing. Chancellor, Rishi Sunak has pledged to support employees and small businesses on an unprecedented scale, but these measures will only limit the damage of an all but certain deep recession.

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