GBP/AUD entered a correction phase, after touching the highest level since January 2016 at the end of last week.
Currently, the pair is trading at 1.9572, down 1.20% as of 5:40 AM UTC. The price is now breaking below a decent support line. Thus, its next support level is at around 1.9300.
Both the UK and Australia are struggling with the COVID pandemic and its impact on the economy. However, the latter might be in a slightly better position, especially when China, Australia’s largest trade partner, has managed to curb the spread of the virus.
RBA Injects 5 Times More Cash Than Intended
The Aussie started to gain confidence after the Reserve Bank of Australia (RBA) took action last week to support the economy. On Tuesday, the central bank pumped the equivalent of $4.03 billion into the financial system via its repurchase agreements. This is about five times more than initially intended.
The Australian currency has welcomed more investors as the US dollar became less attractive after the Fed announced unlimited support.
All in all, despite RBA’s measures, Australia cannot avoid a recession, as the lockdown measures affect many of the key industries.
Westpac chief economist Bill Evans commented:
“We estimate that there will be 814,000 in job losses in the June quarter lifting the unemployment rate to 11.1%. Working through our GDP estimates on an industry basis and acknowledging that output is not always aligned with employment this approach points to a contraction in GDP of 3.5% in the June quarter.”
According to Evans’ projections, the jobless rate might surge to the highest level since December 1992, when it peaked at 11.2%. Also, Australia’s economy hasn’t seen a recession since the first half of 1991.
Yesterday, IHS Markit published CBA’s preliminary data, which showed that the services purchasing managers’ index (PMI) tumbled to 39.8 in March, from 49.0 in February. Analysts expected a decline to 48.3.
Commonwealth Bank’s chief economist Michael Blythe explained:
“The services sector is being hit hard by the cancellation of events, general fears about social interaction and a very sharp decline in offshore demand as travel restrictions bite.”
Despite the gloomy fundamentals, the Aussie has managed to recover, also benefiting from a weakening pound. Recently, UK Prime Minister Boris Johnson banned citizens from leaving home as part of a series of tightening social distancing measures.
