GBP/AUD On Pause After Several Bearish Sessions  

GBP/AUD is pondering its next move after losing over 1.4% since the start of the week.

Currently, Pound to Australian dollar rate shows no clear direction, trading at 1.9417, down 0.01% as of 6:35 AM UTC.

Australia’s Treasury and Central Bank Expect GDP Contraction

The Aussie’s bullish rally ceased when the Reserve Bank of Australia (RBA) and the country’s Treasury separately told a parliamentary panel that the economy would likely contract for the first time in nine years as a result of the coronavirus impact. Both institutions expect a cut of 0.5% of the gross domestic product (GDP) in the first quarter of this year.

Steven Kennedy, head of Treasury, said the impact might extend into the second quarter, though he wasn’t anticipating a recession. Kennedy said:

“The economic impact of COVID-19 is likely to be deeper, wider and longer when compared to SARS. It will create more risk of a prolonged downturn and fiscal support will be needed to accelerate the recovery of the economy.”

SARS was a virus outbreak that started in China about 17 years ago. It killed less than 1,000 people.

The government is about to provide a fiscal stimulus for the economy next week, though the scale of its measures is not expected to be substantial.

Josh Williamson, Citigroup’s senior economist for Australia, anticipates that the government help will be between A$3 and A$5 billion, which is about 0.1% of GDP. He said:

“Such a package would be designed to offset the expected loss of output, rather than deliver a material boost to activity that closes the negative output gap that existed prior to COVID-19.”

Earlier this week, the RBA cut interest rates by 0.25% to 0.50%, updating the record low. Investors are pricing in an 85% chance of another rate cut in April.

The central bank expects that exports of tourism and education, which make about 5% of GDP, to tumble around 10% in the three months to March. RBA Deputy Governor Guy Debelle warned that the situation is rapidly deteriorating and the bank’s estimates don’t even include supply chain disruptions. He said:

“We are hearing about that in the construction and the retail sector. But how long-lasting and how severe that is, we’re just not in a position to tell.”

Yesterday, Australia reported better-than-expected GDP figures for the last three months of 2019.

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