Pound Australian Dollar (GBP/AUD) Exchange Rate Pushes Higher as RBA Cuts Interest Rates
The Reserve Bank of Australia’s (RBA) decision to cut interest rates from 0.5% to 0.25% helped the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate gain further ground.
While the move came as little surprise the Australian Dollar (AUD) still softened in the wake of the announcement as worries over the economic outlook lingered.
With the RBA set to embark on its first-ever quantitative easing program in an attempt to limit the impact of the Covid-19 crisis AUD exchange rates struggled to find any traction on Thursday morning.
Even with central banks and governments around the world stepping up their response to the pandemic a sense of risk-aversion continued to hang over markets, limiting the appeal of the Australian Dollar.
Anxiety Over Rising UK Government Debt Hampers GBP/AUD Exchange Rate
As markets expect to see UK government debt balloon in the months ahead, thanks to promised fiscal stimulus measures, support for Pound Sterling (GBP) remained muted.
Although the intervention could limit the damage of the Covid-19 crisis investors took little encouragement from the prospect of a further increase in UK public sector borrowing.
An increased debt burden would ultimately put pressure on the UK economy further down the line, with the end of the Brexit transition period still casting a shadow over the outlook.
This helped to drag the Pound to a thirty-five year low against the US Dollar (USD), with market risk aversion putting pressure on GBP exchange rates.
With Friday’s public sector net borrowing figure expected to show that government debt already picked up in February the mood towards the Pound could sour further.
Unless investors find fresh cause for optimism in the UK outlook and doubts over the effectiveness of government intervention ease the GBP/AUD exchange rate may struggle to hold onto a positive footing.
Global Recession Fears Set to Keep Australian Dollar Under Pressure
Demand for the Australian Dollar looks set to remain muted as long as markets continue to brace against the possibility of a global recession.
With global growth looking set to contract in the first half of 2020, thanks to the shutdowns triggered by Covid-19, investor risk appetite seems unlikely to see any recovery in the near term.
While the stabilisation of the infection rate in China could see the world’s second-largest economy return to activity in the coming months this may not be enough to boost market confidence.
As long as investors see reason to doubt the likely effectiveness of global stimulus measures AUD exchange rates could remain on a weaker footing.
However, if the US Dollar runs out of upside momentum in the days ahead this could put a dampener on the GBP/AUD exchange rate as the appeal of higher-yielding assets improves.
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