GBP/AUD surged to the highest level since January 2016, as the oil market saw the biggest crash since the Gulf War in 1991. The pair is currently trading at 2.0157, up 2.74% as of 6:50. The price touched a daily peak at 2.0752 but has corrected since then. Still, this is the biggest daily gain in many months, while the pair hasn’t been trading above 2.000 since May 2018.
Oil Prices Show Biggest Single-Day Drop in 29 Years
Both Brent and WTI have plummeted by about 30% on Monday, showing the biggest daily decline in almost three decades. The crash started when Saudi Arabia initiated a price war in retaliation to Russia’s refusal to cut oil production in an effort to fight the economic threat caused by the coronavirus outbreak. Saudi Arabia and Russia have been part of the OPEC+ alliance for over three years, but recent disagreements led to the disintegration of the group.
Saudi Arabia cut its official selling oil prices and hinted that it would boost output in April to above 10 million barrels per day after the current agreement of production cuts expires at the end of this month.
Besides a surge in oil production, global demand for oil is expected to decline this year because of the coronavirus effect. Ed Morse, head of commodities research at Citigroup, commented:
“This is the first time I can recall that there has been a significant oversupply crunch and demand shock at the same time. The combination is really unusual and makes it more difficult to see how you work your way out of it.”
He and Goldman Sachs analysts are expecting oil prices to decline further to around $20. Currently, Brent is trading at around $33 while WTI futures are fluctuating just below $30.
The Australian economy has already been hit by one of the worst fire seasons on record and has dealt with the economic disruptions caused by the coronavirus outbreak that started in the Chinese city of Wuhan. Now the country is facing another major challenge.
Even without the oil market shock, Bloomberg economists were expecting Australia’s first recession in about 30 years. James McIntyre predicted that the country’s GDP would drop 0.4% in the first quarter of 2020 and 0.3% in the next three months. He commented:
“Isolations and domestic disruptions to contain the spread of the virus will have a mounting economic impact, which is likely to result in a further GDP contraction in 2Q and potentially beyond. Stimulus, both fiscal and monetary, will help to reduce the damage, but is unlikely to be enough to offset the impacts.”
