Pound Australian Dollar Exchange Rate Rises as Australia’s Consumer Inflation Expectations Fall

February 13, 2020 – Written by John Cameron

GBP/AUD Exchange Rate Edges Higher as Coronavirus Dampens Market Risk Appetite

The Pound Australian Dollar (GBP/AUD) exchange rate rose by 0.3% today, with the pairing currently trading around AU$ 1.937 after Australia’s consumer inflation expectations report for February fell below forecasts from 4.7% to 4%.

The Australian Dollar’s (AUD) weakness has also been compounded by a spike in China’s coronavirus epidemic which has consequently limited market appeal of the risk-sensitive ‘Aussie’ today.

With China being Australia’s largest trading partner, the escalating epidemic is threatening to derail the world’s second-largest economy and jeopardies the recovery for Australia’s sensitive global trade-reliant economy.

The Reserve Bank of Australia’s (RBA) Philip Lowe, however, has remained optimistic, commenting:

‘There are still a lot of people getting infected but the infection rate is coming down, so if that continues, I think we can have reasonable optimism that the number of cases has stabilised… I think we’ll see Chinese stimulus. That will be good for us and we’ll return to that gradually improving trend we looked like we were on before the virus.’

As uncertainty over China’s economy continues to haunt markets, however, we should expect markets to remain in a risk-off mood for the time being.

GBP/AUD Exchange Rate Rises on Hopes of March Budget Boost

The Pound (GBP) edged higher after Prime Minister Boris Johnson went ahead with his long-awaited post-Brexit cabinet reshuffle today, which saw Sajid Javid, the former Chancellor, step down to be replaced by Rishi Sunak.

Now that Downing Street has tighter control on March’s budget, this has provided some cheer for the Bank of England (BoE), which recently requested increased public spending to stimulate the British economy.

Paul Dales, Chief UK Economist at Capital Economics, commented:

‘We already thought that the Budget on 11th March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1.0% is in the pipeline.’

‘It’s now possible that the Budget will provide a bigger bang.’

Today also saw the UK RICS Housing Price Balance for January rise by 17%, providing a further boost for the British economy.

Simon Rubinsohn, RICS Chief Economist, commented:

‘The latest survey results point to a continued improvement in market sentiment over the month, building on a noticeable pick-up in the immediate aftermath of the General Election.’

GBP/AUD Outlook: Could UK-EU No-Deal Concerns Weaken Sterling?

The Australian Dollar (AUD) will remain sensitive to coronavirus developments this week. Any further indications that this could weaken the Chinese economy, however, would prove AUD-negative.

The GBP/AUD exchange rate will be driven by Brexit developments into the weekend, with any signs that the EU could further harden its position on trade weakening Sterling as no-deal fears return to haunt British markets.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts