Pound Australian Dollar (GBP/AUD) Exchange Rate Recovers Ground amid Covid-19 Anxiety

March 12, 2020 – Written by Frank Davies

As Australian consumer inflation expectations failed to pick up on the month as forecast the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate recovered some of its lost ground.

With inflationary pressure failing to build further the risk of further potential Reserve Bank of Australia (RBA) policy action remains, to the detriment of the antipodean currency.

Support for AUD exchange rates also weakened in response to the latest wave of market risk aversion, driven by the shock announcement of a US travel ban on EU countries.

As the risk of a global economic slowdown continues to mount the appeal of the risk-sensitive Australian Dollar deteriorated further, offering the GBP/AUD exchange rate a boost.

Global Covid-19 Jitters to Weigh on Australian Dollar Demand

Market fears over the ultimate impact of the Covid-19 outbreak look set to keep the Australian Dollar on the back foot in the days ahead.

The growing disruption to global trade and the rising risk of a potential recession may encourage investors to leave the Australian Dollar on the sidelines for some time to come.

Fresh US consumer confidence data could offer AUD exchange rates some support ahead of the weekend, however, if the appeal of the US Dollar weakens.

Any faltering of the safe-haven USD may open the way to a temporary recovery for the Australian Dollar, particularly if jitters over Covid-19 show any signs of easing.

Pound Vulnerable to Anxiety Over UK Economic Outlook

In the absence of any fresh UK data releases this week, though, the Pound could struggle to hold onto any particular strength against its rival.

With the UK economy still at risk of slowing in the face of Covid-19 disruption and ongoing uncertainty over its future trade relationship with the EU any GBP exchange rate strength may prove fleeting.

However, thanks to the Bank of England’s (BoE) shock interest rate cut the GBP/AUD exchange rate may see limited downside in the near term.

If the UK government further steps up its response to the Covid-19 outbreak, though, a sense of anxiety could deter investors from buying into the Pound.

Release of RBA Minutes Set to Dent AUD Exchange Rates

Further weakness could be in store for the Australian Dollar next week, however, with the release of the RBA’s March meeting minutes.

Once markets see further details of the central bank’s decision to cut interest rates to a fresh record low AUD exchange rates may shed further ground.

As long as the possibility of further monetary loosening appears to remain on the table any potential for Australian Dollar strength seems muted.

On the other hand, signs that policymakers are leaning towards remaining on hold in the months ahead this may send the GBP/AUD exchange rate into a fresh downtrend.

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TAGS: Pound Australian Dollar Forecasts