The pound has been in fighting back against Australian dollar this week, with the interbank rate having risen to 2.0569 in the last 24 hours, very close to the post-Brexit high of 2.0780 seen on the 19th March, the best since June 2016.
The pound has been benefitting from renewed confidence in the global economy, and whilst coronavirus and its effects are of huge concern, the market has been buoyed by the prospect of the UK’s stimulus measures helping to revert many of the losses seen since it became apparent the coronavirus was going to affect the UK back in February and March.
The reason for the ascendancy against the Australian dollar, despite sterling’s weakness is that the Australian dollar does not perform well in a very uncertain global environment, with less demand for its raw materials. Australia relies heavily on exports of iron ore and other commodities and precious metals to China, its main export destination.
The slowdown in China has caused the RBA (Reserve Bank of Australia) to not only cut interest rates to a record low of 0.25%, but to also to launch a program of QE (Quantitative Easing), where the RBA buys certain assets, helping to inject liquidity and confidence into the financial system.
Will the Pound to Australian Dollar Keep Rising?
The net effect of the interest rate cut and QE is to weaken the currency, since it has made the AUD less attractive to hold. The RBA delivered their latest meeting minutes recently and indicated they were not prepared to go lower and weren’t considering negative rates.
There was some good news for the Australian dollar, with China posting data on Wednesday that indicated a reversal in sentiment, with their Manufacturing PMI (Purchasing Managers Index) reading for February coming in at 50.1, versus 46 for February, where any reading above 50 represents expansion.
This positive data however has overall appeared to do more for the pound, by contributing to the positive sentiments on the global economy that have seen the pound benefitting. Another reason for sterling strength has been fresh concern over the lack of coordinated action by the Eurozone, with the strong stimulus response by the UK government winning investor support.
Today could be a crucial for GBPAUD exchange rates with the latest US NFPR (Non-Farm Payroll) and Unemployment data. This could prove vital for any clients interested in the latest news ahead for the Australian dollar, since this release can be viewed in terms of its relationship to the US economy and can affect attitudes to risk and global sentiment on trade.
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