GBP/AUD: Pound Higher despite Sinn Fein Election Victory

The British pound is up against the Australian dollar on Monday afternoon with uncertainty about the impact of the coronavirus on the Asia-Pacific economy seeing traders stay cautious about owning Australian-dollar denominated investments. At the same time the pound was seeing some light relief from last week’s drubbing ahead of a big day for economic data releases on Tuesday.

GBP/AUD was higher by 62 pips (+0.32%) to 1.9355 with a daily price range of 1.922 to 1.937 as of 2.30pm GMT. The currency pair dipped below 1.925 before rallying 100 pips through the afternoon to overcome 1.935. The gains go some way to offset the heavy losses seen last week of -2.05%.

AUD unable to maintain last week’s gains against GBP

A mixed message on the coronavirus meant the Aussie was unable to maintain the gains made against Sterling last week. Indeed elsewhere, including versus the US dollar the Aussie fell last week on the expected economic fallout from the coronavirus which was emphasised by the Prime Minister as well as the Governor of the RBA, Philip Lowe.

Higher Chinese inflation figures gave the Australian dollar, often used as a proxy for the economic prospects of China its initial bump higher on Monday. But concerns that runaway inflation might means China’s central might have to reassess its easy money policy response to the coronavirus outbreak saw the Aussie turn lower. In ordinary circumstances, a central bank would react to an accelerating inflation of 5.4% y/y with higher interest rates. However, The People’s Bank of China (PBOC) initiated a program of low-interest loans for banks in Hubei province and surrounding areas affected by the coronavirus.

Sinn Fein’s win could cause trouble for GBP

A surprise win for Sinn Fein, a left-wing Irish nationalist party in Irish elections could bring more trouble down the pike for UK/EU trade negotiations and even the future of the union of the UK since it supports the reunification of the Republic of Ireland with Northern Ireland. It is not certain Sinn Fein will form part of a coalition government, but it’s hard to see how it couldn’t as the largest party.

After a light economic calendar on Monday, the action picks up on Tuesday via industrial production, trade balance and 4Q GDP growth which is expected to have ground to a halt at 0%.

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