GBP/AUD: Aussie Dollar Shrugs Off Coronavirus Fears

After rallying over 0.9% versus the Australian dollar in the previous session, the pound is edging lower in the European session, on Friday. At 13:30 GMT the pound was down -0.2% at 1.9369 as it eases back from Thursday’s 7-day high.

Australian Dollar

The Australian dollar has managed to close higher versus the pound 4 out 5 days this week despite alarming coronavirus statistics, the potential impact on the Chinese economy and the spillover effect on the economies of China’s trading partners, such as Australia.

According to analysts, the Chinese economy is forecast to grow by 4.5% on a yearly basis in the first quarter of 2020. This is down from the 6% growth recorded in the last quarter of 2019. Should the Chinese authorities fail to slow the spread of the virus then the impact could be worse and GDP of 3.5% in the first quarter is a possibility.

Yet despite these statistics the Australian dollar has outperformed this week, suggesting that investors’ concerns are easing.

With no more Australian economic data due to be released this week investors will look ahead to next week. The minutes from the latest Reserve Bank Australia meeting could attract some attention after the central bank kept rates on hold. Speculation is growing that the RBA could be forced to cut sooner rather than later, therefore any dovish comments could drag on the Aussie dollar.

Pound

The pound is giving back some of the gains earned in a stellar rally on Thursday. The resignation of UK Chancellor Sajid Javid and his replacement with Rishi Sunak propelled the pound higher.

Ex hedge fund manager Rishi Sunak is considered more business friendly and more open to an expansionary fiscal policy. In short, the prospect of higher government spending in the Budget next month helped lift sterling. This is because if the government is prepared to spend more, it takes the pressure off the Bank of England to cut interest rates. The pushing back of any rate cuts by the BoE boosts demand for the pound.

This week has been a quiet week for UK economic data. Looking ahead to the coming week, investors will focus on UK employment and wage data on Tuesday, followed by infkation figures on Thursday.

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