- Australian Dollar (AUD) recovers earlier losses as risk sentiment improves and despite mixed data
- Australian labour market data up next, unemployment expected to increase to 7%
- Pound (GBP) drops after inflation hits fresh 4 year low
- At 08:15 UTC Pound Australian Dollar exchange rate (GBP/AUD) trades -0.3% at 1.8182
The Australian Dollar is strengthening versus the Pound, picking up from session lows as risk sentiment starts to improve.
At 08:15 UTC, GBP/AUD is trading -0.33% at 1.8182, this is at the lower end of the daily traded range of 1.8180 – 1.8309.
Risk sentiment declined overnight, amid geopolitical tensions in Asia and as fears of a second flare up of coronavirus cases in Beijing. Chinese authorities have taken measures such as grounding flights and closing schools in the county’s capital to prevent this jump in cases from spiralling out of control.
However, as the European session progresses riskier assets have returned to favour with stocks pushing higher and perceived riskier currencies, such as the Aussie Dollar, back in demand.
Domestic Australian data was a mixed bag. On the one hand, the Westpac leading index surprised to the upside, unexpectedly increasing 0.19% in May, compared to 1.47% decline in the previous month.
Data covering the housing market, however, was less encouraging with housing sales -4.2% in April, amidst the height of the lockdown, compared to a -1.1% decline in March. This data comes after the Reserve Bank of Australia warned that house prices could fall 7% in the year ahead under its baseline scenario for the coronavirus pandemic.
Investors will now look ahead to the closely watched Australian labour market data for further clues as to the impact of the coronavirus crisis. Unemployment is expected to increase to 7%.
The Pound is heading southwards as UK inflation sinks to a four year low in May. According to the Office of National Statistics, the consumer price index, (CPI) dropped to just +0.5% in May compared to a year earlier, falling from 0.8% in April.
The drop in prices came as the coronavirus lockdown sucked demand from the global economy. The price of non-essential items declined as demand evaporated and the price of fuel also dropped sharply following the steep decline in oil prices in recent months.
The data paves the way for the Bank of England to add stimulus when it makes its monetary policy announcement tomorrow. Whilst the central bank is not expected to cut rates from the current, historically low level of 0.1%, policy makers are expected to add £100 billion to the QE programme.
