GBP/AUD is bouncing back after two bearish sessions in a row. Currently, one British pound buys 1.9868 Australian dollars, up 0.51% as of 6:50 AM UTC.
The Aussie has declined on Thursday morning as investors are turning to safe-haven assets amid concerns over the economic impact of the coronavirus, which was declared a pandemic by the World Health Organization (WHO).
Stephen Innes, chief markets strategist at AxiCorp, commented:
“‘Sell Sell Sell’ is being heard across dealing rooms in Asia. Travel restrictions equal slower global economic activity, so investors are seeing an increased probability of a global economic downturn.”
Australia Pumps $11.4B Into Economy
Australia’s government announced that it would inject A$17.6 billion ($11.4 billion) into the economy to fight a potential recession caused by the coronavirus outbreak. Previously, the government extended travel restrictions after the WHO’s declaration of a pandemic.
This is Australia’s first stimulus package since the financial crisis in 2008. Even though the country has confirmed only 130 cases so far, with three people dead, economists anticipate the outbreak to cause a recession in the second quarter.
Australian Prime Minister Scott Morrison said that the package would subsidize the salary of 120,000 apprentices, support small businesses, and provide one-off cash payments for pensioners and welfare recipients. The PM added:
“This is a comprehensive, a well-thought-through, a well-targeted plan, which is designed to support the Australian economy and jobs and businesses through the difficult months ahead.”
Australia has not seen a recession since the early 1990s. A recession is defined as two straight quarters of GDP contraction.
However, despite the package, economists still expect Australia to enter an economic recession. Craig James, chief economist at Commonwealth Bank of Australia, commented:
“The package won’t super-charge the economy. Neither does it guarantee that the economy won’t slip into recession. But it is a good first step.”
Elsewhere, ANZ Bank said in a note to investors:
“Whether a recession can be avoided is still an open question as the management of the COVID-19 health crisis dictates the economic fallout.”
To curb the spread of the virus, the Australian government extended the travel bans on China, South Korea, Italy, and Iran.
