The British pound is higher against the Australian dollar on Monday afternoon with the Aussie taking the brunt of Asian regional FX selling while Chinese markets were closed for the Lunar New Year celebrations. An afternoon sell-off in the pound (which was more muted against the pressured Aussie dollar) was likely caused by anxiety about the upcoming decision on UK interest rates.
GBP/AUD was higher by 137 pips (+0.71%) to 1.9291 with a daily price range of 1.91 to 1.922 as of 2pm GMT. An early rise in the currency pair was capped just above 1.93 which marked a fresh six-week high.
The Australian dollar, given its geographical proximity and close trade ties to China is being used as a proxy for China in today’s forex market. The Aussie is on a multi-day losing streak over the spread of the deadly coronavirus.
Fears that authorities might not have the virus as well under control as first intimated by the World Health Organisation has seen global stock markets and so-called ‘high-beta’ currencies like the Australian dollar slump. As a reminder, the Aussie’s high beta is a reference to how its price tends to see exaggerated moves in the direction of the mood in markets. When markets are in a mood to take risk, AUD tends to be an outperformer, but when markets are risk-off AUD normally underperforms other currencies.
News from China is that authorities have locked down travel in the Hubei province. Wuhan, where almost all the deaths have been reported has banned travel by car within the City limits. Long-distance bus services schedule to depart from Beijing have also been cancelled.
Forex markets are on tender hooks before this weeks Bank of England meeting and there is little appetite for the pound. The CME’s ‘BOE (Bank of England) Watch tool’ suggests a less than 50% chance that interest rates get lowered.
In the only Brexit-related news on Monday a spokesperson for the UK PM Boris Johnson confirmed that David Frost is to lead the UK team in trade talks with the European Union.