Pound Australian Dollar (GBP/AUD) Exchange Rate Hits 2-Week Low on Sharp UK GDP Decline

April 9, 2020 – Written by Frank Davies

The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate plunged to its lowest level in two weeks ahead of the bank holiday weekend.

March’s NIESR gross domestic product tracker cast a grim shadow over the Pound, with growth found to have contracted -4.8% on the month.

Following on the heels of a disappointing -0.1% decline in February’s monthly UK gross domestic product data this left GBP exchange rates under renewed pressure.

With all signs pointing towards the UK economy experiencing a significant loss of momentum in the first quarter the risk of an imminent recession continued to pick up.

All in all, investors saw little reason to favour the Pound as the Covid-19 lockdown continues to weigh on economic activity for the foreseeable future.

Latest Rise in US Joblessness Improves Australian Dollar Appeal

On the other hand, the Australian Dollar found fresh support in the weak of the latest US initial jobless claims reading.

As the US jobless rate picked up 6.6 million on the week this pointed towards the US unemployment rate climbing to a fresh record high in the near future.

Comments from Federal Reserve Chair Jerome Powell helped to further weaken the US Dollar, to the benefit of the higher-yielding Australian Dollar.

As Powell indicated that there is ‘no limit’ on the amount of support that the central bank is willing to offer the US economy the general sense of market risk appetite improved.

With the Fed looking set to ease monetary policy further in order to shore up US growth investors saw little need for safe-haven assets, boosting AUD exchange rates.

NAB Business Confidence Drop Set to Dent Australian Dollar

Even so, the mood towards the Australian Dollar could easily sour once again if March’s NAB business confidence index dips as forecast.

A deeper decline in negative territory would not bode well for the outlook of the Australian economy, suggesting that businesses see little cause for confidence at the end of the first quarter.

As long as markets see reason to bet on the possibility of a more severe slowdown in the Australian economy AUD exchange rates could struggle to find any traction.

However, if sentiment shows a smaller deterioration than forecast on Monday this could help the Australian Dollar to hold onto a stronger footing against its rivals.

Lingering global anxiety over the impact of the Covid-19 outbreak may still put a drag on AUD exchange rates for some time to come, though, as the economy remains on track for a recession.

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TAGS: Pound Australian Dollar Forecasts