Pound Australian Dollar Exchange Rate Sinks as Australian Growth Report Beats Forecasts

March 4, 2020 – Written by John Cameron

GBP/AUD Exchange Rate Falls, ‘Aussie’ Benefits from Improving Risk Sentiment

The Pound Australian Dollar (GBP/AUD) exchange rate fell by -0.4% today, with the pairing currently fluctuating around AU$ 1.939 after Australia’s growth report for the fourth-quarter beat forecasts and rose by 0.5%, while the year-on-year figure edged higher from 1.7% to 2.2%.

Sarah Hunter, an analyst at BIS Oxford Economics, was downbeat in her analysis saying that this would not prevent the possibility of a recession this year. Hunter added:

‘Overall, the data confirms that momentum in 2019 was slow and steady (through the year growth was 2.2 per cent). But conditions have clearly changed markedly since then. [Additionally, the] coronavirus outbreak is putting a substantial strain on the global economy, through disruption to tourism, higher education, global supply chains and financial markets.’

The Australian Dollar (AUD) has also benefited from the US Federal Reserve’s announcement of an emergency interest rate cut yesterday.

The ‘Aussie’ has benefited from a weakening US economy as investors seek out riskier assets. AUD’s allure has also been improved by rising expectations of a rate cut from the Bank of Canada (BoC) later on today.

However, Kit Juckes, an analyst at Societe Generale, Paris, was downbeat about AUD’s short term performance:

‘The AUD has bounced as global risk sentiment has improved, but it is still at extremely weak levels, priced for continued economic weakness at home and in China.’

GBP/AUD Exchange Rate Decreases as UK Economic Outlook Dims

The Pound (GBP) fell against many of its peers today after February’s UK Markit Services PMI flipped below forecasts from 53.3 to 53.2.

Chris Williamson, Chief Business Economist at IHS Market, was downbeat in his forecast for the British economy:

‘Whether this expansion can be sustained in coming months is starting to look increasingly at risk. On one hand, February saw future output expectations climbing to the highest for over four and a half years as firms remained optimistic that reduced political uncertainty, in particular, will help drive further growth. On the other hand, the survey also highlights the risks to the economy from the coronavirus.’

The GBP/AUD exchange rate has also been plagued by rising fears that the Bank of England (BoE) could cut its interest rates in the upcoming weeks.

Sterling investors will be looking ahead to today’s speech by Dr Ben Broadbent, a Member of the Monetary Policy Committee at the BoE. Any dovish comments about the British economy would heighten the odds of a rate cut from the central bank and prove Pound-negative.

GBP/AUD Outlook: BoE Speech in Focus

Australian Dollar (AUD) investors will be looking to tomorrow’s release of January’s Australian trade balance report. If this shows deterioration at the beginning of the year, we would likely see the ‘Aussie’ begin to slip against its peers.

Sterling traders will be awaiting tomorrow’s speech by Mark Carney, the Governor of the Bank of England (BoE). Any hints of an imminent rate cut from the Bank would prove Pound-negative.

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TAGS: Australian Dollar Forecasts Pound Australian Dollar Forecasts