The British pound is lower against the Australian dollar on Tuesday.
The Australian dollar gained after interest rates in Australia were left on hold at a record low of 0.25% and central bank bond purchases were ‘scaled back’.
Dialled down rhetoric from the United States about investigating the cause of the coronavirus in China reduced anxiety about the impacts of a new trade war.
GBP/AUD was down by 27 pips (-0.15%) to 2.0046 as of 4.30pm GMTD
The currency pair slid below yesterday’s low of 1.935 to then find new support at 1.93. The exchange rate fell -0.61% yesterday, leaving a weekly loss of -0.92%.
GBP: Trade talk progress “has not been good”
Word from Ireland’s Foreign Minister that progress in post Brexit trade negotiation “has not been good” weighed slightly on the pound, with new talks set to begin next week.
A final reading for the April services PMI coming in ahead of expectations may have blunted the blow. Upon release of the data, Markit noted that the data suggests one of the biggest quarterly contractions in the UK economy in living memory. “Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%.”
AUD: Central bank scales back bond purchases
Although the headline was that the RBA left interest rates on hold, the reason for the small gains in the Australian dollar relate more to the bank’s QE program.
The RBA has kept its yield target for Australian government bonds but has scaled back the frequency and size of bond purchases because the functioning of the bond market has improved since the program started. However the bank did emphasise it is prepared to scale-up purchases again and do “whatever is necessary.”
RBA Governor Philip Lowe predicted a -10% q/q economic contraction in Q2 alongside 10% unemployment but only -6% GDP y/y for 2020. The language remained very downbeat on the economic outlook saying the “Global economy is experiencing a severe downturn” and said “There is considerable uncertainty about the outlook.”
