Pound Australian Dollar (GBP/AUD) Exchange Rate Slumps as US ‘Fiscal Bazooka’ Boosts Risk Appetite

March 25, 2020 – Written by John Cameron

Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Falls as US Stimulus Bill Buoys Risk Appetite

The Pound Sterling Australian Dollar (GBP/AUD) exchange rate slumped by around 0.4% this afternoon, leaving the pairing trading at around AU$ 1.9654.

The risk-sensitive Australian Dollar received an upswing of support today, after US senators and the Trump administration reached an agreement on a huge economic stimulus bill to help alleviate the economic impact of the coronavirus pandemic.

This buoyed risk appetite, as the package promises to ease some of the pandemic-driven increase for cash which has driven the US Dollar (USD) higher and riskier assets lower over the last month.

Commenting on this, Kenneth Broux, FX strategist at Societe Generale said:

‘We are seeing the most oversold currencies bought back on the back of the stimulus package. The pandemic is still spreading and policymakers have put all their chips on the table. We will have to wait now to see how things will pan out.’

The improved optimism supported the ‘Aussie’ today, as the stimulus bill also followed earlier moves from the US Federal Reserve to help offset the economic impact of Covid-19.

Commenting on this, Moh Siong Sim, currency analyst at the Bank of Singapore said:

‘Now we are seeing the fiscal bazooka in action, and that should help further ease the Dollar funding stress. There has been a need for cash to ride through this period where there is a revenue shortfall.’

Added to this, some stability in China caused risk appetite to increase.

GBP/AUD Slumps despite US Dollar (USD) Weakness

Sterling was able to extend its rally today on a weaker US Dollar (USD) and signs of stability despite the coronavirus pandemic.

GBP rallied against a handful of currencies, however, the British currency struggled to make gains against the ‘Aussie’.

As the country’s economy is also heavily reliant on financial markets, a rally in global stocks also provided extra support.

Commenting on this, Neil Jones, head of European hedge-fund sales at Mizuho noted:

‘Sterling is a benefiting part of Dollar weakness. We’ve got some stability with China returning to normality, (so) maybe there is a light at the end of the tunnel.’

Added to this, investors moved towards the Pound as worries were calmed by financial stimulus from both the Bank of England (BoE) and the government.

Pound Australian Dollar Outlook: Bank of England (BoE) in Focus

Looking ahead, the Pound (GBP) could slip further against the Australian Dollar (AUD) following the release of UK retail sales data.

If British sales plummet further than expected, Sterling will suffer further losses against the ‘Aussie’.

However, the Bank of England’ (BoE) monetary policy meeting and minutes are scheduled for release on Thursday which could boost GBP.

If the bank announces any further stimulus following last week’s emergency meeting and rate cut, and the minutes reveal policymakers are optimistic, the Pound Australian Dollar (GBP/AUD) exchange rate could edge higher.

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TAGS: Pound Australian Dollar Forecasts