GBP/AUD continues bearish mood on Wednesday, after attempting a recovery yesterday. Currently, the pair is trading at 1.9628, down 0.52% as of 7:50 AM UTC.
Central Banks’ QE Boost Supports Aussie
The Australian dollar has gained more confidence after the US Fed announced unlimited quantitative easing (QE), which boosted risk assets that previously tumbled against the US dollar.
The Reserve Bank of Australia also ramped up its stimulus measures. Earlier today, the central bank said it would buy A$2 billion in long-date semi-government bonds as part of its QE programme. This is the first time when the RBA is ready to buy semis, which shows the magnitude of the crisis caused by COVID pandemic. Yesterday, the Fed shocked the markets when it said it would buy corporate bonds.
Australia’s semi-government bond market has been under massive liquidity pressure in recent weeks, as many companies across the country were forced to shut down.
State government revenues will be hit as well, as the government halts property auctions from today.
ANZ economist David Plank commented:
“This has material implications for state government revenues, some of whom rely heavily on stamp duty from home sales. As a consequence, we expect to see considerable near-term volatility in semi-government spreads.”
While the spread of the virus hasn’t reached the UK levels, Australia wants to act promptly. The government has reported over 2,250 cases so far.
Yesterday, Australia limited the number of people permitted at weddings, funerals, and gatherings. Besides this, citizens cannot eat in shopping centre food courts anymore.
“This will be a significant sacrifice, I know,” Prime Minister Scott Morrison said.
Economists argue that recent restrictions on the movement of people will result in the first recession in 30 years.
Westpac chief economist Bill Evans stated:
“On our analysis, the cyclical budget deterioration in the COVID-19 recession will potentially be in the order of 5% of GDP, with risks to the upside.”
As for the UK, the government reported the biggest daily increase in COVID-related deaths. The number of confirmed cases surged on Tuesday by 21% to 8,077, while the death toll rose by 87 to 422.
