– AUD closing at the bottom of the FX barrel for 2021
– While “containment” disturbs the economy and bond yields
– Political implications of the RBA, global risks also at stake
– Could see AUD / USD at 0.70, GBP / AUD at 1.94
Image © Neal Jennings, Reproduced under CC license.
- GBP / AUD reference rate at publication:
- Place: 1.8622
- Bank transfer rate (indicative guide): 1.7970-1.8100
- Specialist money transfer rate (indicative): 1.8450-1.8492
- More information on obtaining specialized rates, here
- Set up an exchange rate alert, here
The pound sterling rate against the Australian dollar was edged up at mid-week, helped by a continued underperformance at the antipodes that pushed the Aussie closer to last place among major currencies for 2021 and who could see the GBP / AUD climb to 1.94. in the coming months, according to Commonwealth of Australia Bank.
The Australian dollar slipped to a barrel low of major currencies on Wednesday and was only steps away from being the biggest drop in the G10 segment in 2021, allowing the sterling rate against the Australian dollar to rise above 1.86, moving the exchange rate to the British pound. within easy reach of the fourteen-month highs observed briefly on Monday.
It was after Australian Bureau of Statistics the data showed a sharper-than-expected drop in sales value for the month of June and in a market where the US dollar was still advancing widely, which is normally a favorable environment for the pound sterling against the australian dollar.
The Australian pound-to-dollar rate often does well as the US dollar rises, although it has been strengthened in recent weeks by further difficulties after another coronavirus outbreak saw some of Australia’s largest states revert to ‘lockdown “.
“We expect the AUD to be more heavily impacted by market participants lowering the global economic outlook, suggesting that the AUD / GBP may fall. The risk that the RBA will not reduce its purchases of assets in November is another weight on the AUD / GBP. We see a risk that the AUD / GBP falls to 0.5150 in the coming weeks or months (GBP / AUD up to 1.9417) “, says Kim Mundy, strategist at the Commonwealth Bank of Australia.
Above: The pound rate against the Australian dollar is shown at daily intervals alongside the AUD / USD.
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Mundy and the ABC team forecast further declines in the Australian dollar, citing the risks to the global economic recovery resulting from the continued spread of the coronavirus across the world as well as the possible implications for Reserve Bank of Australia (RBA) monetary policy stemming from the Australian government’s response to its own epidemic.
They said earlier in the week that this could potentially cause the Australian 10-year government bond yield to fall from 1.20% to 1% over the next several months, pushing the differential between Australian bonds. Australian and US state even further below the zero level it recently crossed in what would likely be a bearish development for the main Australian AUD / USD exchange rate.
“South Australia has joined NSW and Victoria in imposing blockages. South Australia’s restrictions are particularly strict and include residents staying within 2.5 km of their place of residence and a 6pm curfew, ”Mundy said.
The CBA predicts that the AUD / USD will rise from 0.73 on Wednesday to 0.72 by the end of September, but warned that there is a risk that the exchange rate will fall to 0.70 if bond yields Australia fall and the global market environment also deteriorates, which would push up the pound sterling. – Aussie dollar rate at 1.94 if the major GBP / USD sterling pair holds at or above 1.36 in the midweek session.
The rate gains between the British Pound and the Australian Dollar would be smaller if the GBP / USD fell further in the interim, as changes in the former still closely reflect the relative performance of the AUD / USD and the GBP / USD.
“Credible media reports this week suggest the RBA is likely to rethink its proposed QE cut in light of the current lockdowns. The longer the lockdowns last, the more damaged the economy is and the more likely it is that the current execution rate of $ 5 billion per week will be sustained beyond the end of QE2 in a few months, ”said Richard Franulovich. , responsible for foreign exchange strategy. at Westpac.
Above: AUD / USD displayed at weekly intervals alongside the 10-year AU bond yield.
Australian retail sales fell 1.8% in June despite the month that only included a few days in which major metropolitan areas were under lockdown, implying further declines could be likely in July data. .
This and the risk of economic shutdowns and social restrictions disrupting Australia’s labor market is why many analysts and economists have said they now expect the RBA to reverse June’s decision to cut its quantitative easing program.
The RBA announced last month that starting in September, it would buy less than A $ 4 billion per week of Australian government bonds as part of its quantitative easing program, with a review scheduled for November. who had cultivated the perception that there was a possibility for a new “taper” then.
That, and investor bets that the bank would raise its cash rate by 0.10% in the second half of next year had been widely cited as supporting the Australian dollar in recent months, and therefore could become a burden for it over the next few months. weeks.
“We are not locked into a particular lane and bond buying could be stepped up again if economic conditions warrant,” RBA Governor Philip Lowe said at the monetary policy press conference of June.