Pound to Australian dollar is only slightly bullish despite an avalanche of fundamentals.
Currently, GBP/AUD is trading at 1.9533, up 0.20% as of 6:05 AM UTC.
RBA Cuts Interest Rates to Stimulate Economy
The Aussie extended its losses after the Reserve Bank of Australia (RBA) cut interest rates to record lows in the morning. This might be one of the first coordinated moves conducted by a group of central banks to fight the global economic slowdown caused by the coronavirus epidemic.
Thus, Australia’s central bank has reduced the rate for the fourth time in less than a year, bringing the rate to 0.5% from 0.75%, which itself represented a record low.
RBA Governor Philip Lowe said that the virus outbreak is hurting the local economy, but it was difficult to estimate how large and long-lasting the impact will be. He added that the Board “will continue to monitor developments closely and assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy.”
Interestingly, only a small minority of economists anticipated last week that the RBA might cut the interest rate. However, the panic caused by the coronavirus outbreak prompted almost half of the economists polled by Reuters yesterday to predict an easing, though even that was not a majority. The RBA’s decision was a surprise for many.
Yesterday, the Organisation for Economic Cooperation and Development (OECD) warned that the virus epidemic is pushing the global economy into its worst slowdown since the financial crisis in 2008. Finance ministers of the G7 countries and central bankers are meeting to discuss prompt measures to address the virus threats.
Several sectors of the Australian economy, including tourism, hospitality, transport, and retail, have been hit by a travel ban on China since the beginning of February. China is Australia’s largest trade partner and source of tourists.
A series of economic data this week, suggesting weakening growth in exports and government spending, prompted investors to reduce their expectations for GDP performance in the fourth quarter. Australia will report on its economy tomorrow, with most analysts anticipating a sluggish growth of 0.3%.
Some economists, like AMP’s Shane Oliver, believe that the fourth quarter might have seen a contraction.
“In fact, if December quarter growth turns out to be negative a recession may have already begun,” he noted.
