The British pound is higher against the Australian dollar on Tuesday.
Unwinding short positions may explain a lot of the gains in the pound. A short position is a bet on falling prices. A new government-enforced lockdown across the United Kingdom was seen in a positive light by investors as the best way to combat the spread of the coronavirus.
The Australian dollar was a beneficiary of improved global sentiment but was unable to trump daily gains in Sterling.
GBP/AUD was up by 35 pips (+0.19%) to 1.9853 with a daily range of 1.9519 to 1.9974 as of 5pm GMT.
The currency pair came back from opening losses that saw it drop to 1.96 to surge over 300 pips to 1.99 but it remains in negative territory for the week to date, down -1.12%.
British pound continues short-covering rally
There was some atrocious economic data from the United Kingdom, but since it is expected to be just as bad if not worse in other countries, it was not a big contributing factor to the movement in the pound.
The Flash Composite PMI for March came in at fresh record low of 37.1, a lot worse than 53.0 in February. The composite reading is for purchasing managers in both services and manufacturing sectors. A reading above 50 shows expansion while a reading below 50 means contraction.
It is a fair assumption that if purchasing managers were asked again today, the readings would be significantly worse since the data comes before government lockdown measures went into force at the end of last week.
Australian dollar down despite cash injection
The injection of billions of AUD into the financial system seems to benefitting the Australian dollar for its possible positive economic effects. The RBA has said it will not lower interest rates again so the short term policy implications are that no new measures are coming from the central bank that could weaken the currency.
PMI data from Australia suggests Australia, like the UK is headed for recession. The flash composite PMI for Australia fell to 40.7 in March from 49 prior.
