GBP/AUD has returned above 2.00 as UK Prime Minister Boris Johnson continues to be held in the intensive care unit (ICU) but is in stable condition. Elsewhere, the Aussie is under pressure after disappointing housing market data and S&P’s downgrading.
The pair is currently trading at 2.0069, up 0.45% as of 6:30 AM UTC. The price is now ascending after three bearish sessions that slashed over 2.2%.
The Australian Bureau of Statistics (ABS) reported that the gauge of new housing loan commitments declined by 1.7% in February, even before the coronavirus outbreak became an issue.
ABS Chief Economist, Bruce Hockman, commented:
“February’s fall in the value of new loan commitments for housing follows considerable growth in the series from mid-2019 onwards. New loan commitments for both owner occupier housing and investor housing were down this month, falling 1.7 per cent and 1.9 per cent respectively.”
S&P Downgrades Outlook on Australia’s AAA rating
The Australian dollar has declined also because ratings agency S&P cut its outlook on Australia’s credit rating “AAA” from stable to negative, as the government’s debt position is expected to deteriorate amid the massive stimulus package.
The agency said that Australia’s credit rating might be downgraded to AA+ within the next two years if the impact from the coronavirus pandemic is more severe than it currently anticipates. Australia is in line with only a few countries that can boast the highest ranking from S&P, Moody’s, and Fitch.
S&P expects the Australian economy, worth $1.23 trillion, to fall into recession for the first time in three decades.
Treasurer Josh Frydenberg noted that the outlook downgrade was “a reminder of the importance of maintaining our commitment to medium term fiscal sustainability.”
Fund managers said that S&P’s update wouldn’t increase the government’s borrowing costs by much. However, it may damage local firms whose ratings rely on the sovereign rating. Asmita Kulkarni, Director Investment Strategy at FIIG, commented:
“A large proportion of credit funds are mandated to maintain funds in a specific ratings bucket. With potential widespread downgrades we could see funds being forced to sell-down investment which would result in a widening of credit spreads.”
