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– GBP/AUD market rate at time of publication: 1.9594
– Bank transfer rates (indicative): 1.8917-1.9054
– FX specialist transfer rates (indicative): 1.9127-1.9427 >> More information
An improved global backdrop continues to aid a rally in the Australian Dollar, but we are wary that this week could see the positive sentiment amongst investors challenged as U.S. corporations release their earnings for the first quarter.
The Aussie Dollar is a currency that remains highly correlated with broad investor sentiment, tending to fall when markets are selling off and lift when markets are rising. Investors believe that the worst of the coronacrisis has now come to pass, with many Western economies seeing infection and death rates either plateau or start to decrease.
News that Spain has lifted some restrictions and that France has put in place its own exit strategy suggest conditions in Europe will continue to improve over coming weeks, meanwhile the death rate in the U.S. appears to have stabilised.
“Commodity currencies outperformed in the Asia session. Fed programs to improve USD liquidity, higher oil prices, a slowing in new coronavirus cases and better than expected Chinese trade data for March all supported commodity currencies such as AUD, NZD and CAD. We expect the extra liquidity programs by the Fed to further weaken the USD this week,” says Kim Mundy, a foreign exchange strategist with Commonwealth Bank of Australia.
The Pound-to-Australian Dollar exchange rate has now fallen for six trading days in a row, giving a rate of 1.96 at the time of writing. The U.S. Dollar has likewise lost purchasing power and is USD/AUD is now quoted at 0.6403.
Above: GBP/AUD daily chart.
“The Australian Dollar has been the best performing G10 currency over the past two weeks, gaining over 4% versus the US Dollar. For the most part, AUD/USD has closely tracked the S&P 500, or broad risk sentiment, in line with its typical historical beta,” says George Cole, an analyst at Goldman Sachs.
However, Cole says temporary changes to the country’s pension regime could be offering additional support to the Aussie Dollar.
Australians in financial stress will be allowed to access up to A$20,000 in the next five months. Australia’s superannuation pension industry expects as much as A$50 billion ($31 billion) to be withdrawn over the next five months, causing liquidity problems for some funds.
“An idiosyncratic factor seems to be lending some additional support to AUD,” says Cole, “in preparation for these withdrawals, funds need to sell overseas equities and convert the returns to domestic currency—resulting in upward pressure on AUD from sales of any unhedged holdings—and initial reports suggest take-up will be significant.”
There could therefore be a short-term flavour to the Aussie Dollar’s period of outperformance based on this observation.
Goldman Sachs anticipate an extension of the Australian Dollar’s recent gains, provided global markets continue to improve. “However, our more cautious stance on markets means any AUD upside will probably be relatively short-lived and would likely see AUD/USD move back towards mid-March levels if equities turn lower,” says Cole.
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