GBP/AUD: Australian dollar continues to surge in markets
After the pound to Australian dollar (GBP/AUD) exchange rate climbed to highs of AUD 2.06 in April, the currency pair has plummeted below AUD 1.91 in May.
At the time of writing, GBP/AUD is trading at AUD 1.9026 , and according to the latest technical data in the market, the pound (GBP) is forecast to maintain a depreciation trend for next few weeks.
However, the global economy is now on the path to recovery and, as Australia was one of the first countries to ease lockdown measures, the Australian dollar (AUD) has found itself at the forefront of the market upturn.
The UK is trailing behind Australia regarding the relaxation of lockdown restrictions, and in turn, the pound (GBP) is losing significant value against its Australian counterpart.
Several directional indicators also suggest that the currency pair is poised for further short-term declines. The Relative Strength Index (RSI) currently reads below 50, which tends to indicate a period of near-term losses.
Equally, the Moving Average Convergence Divergence (MACD) , which analysts often refer to when estimating future price action is riding along its signal line, which suggests short-term weakness.
If the pound to Australian dollar (GBP/AUD) exchange rate rises above its moving averages, market sentiment towards the British pound (GBP) will shift, and the single currency will likely strengthen.
The pound (GBP) was expecting to see some relief after UK Prime Minister Boris Johnson announced the UK’s lockdown exit strategy, but he failed to inspire confidence in currency markets.
Instead, GBP/AUD has remained rangebound on Monday and the currency pair is trading only 0.2% above resistance.
UK lockdown fails to provide the pound with meaningful momentum
Boris Johnson failed to generate positive impetus for the pound (GBP) on Sunday as markets reacted to the UK government’s lockdown exit strategy with disappointment.
The Prime Minister announced a comprehensive plan on how the UK would ease lockdown measures. Still, it seems his statement left many in a state of confusion as several businesses called for clarification.
Mr Johnson said a ‘conditional lockdown’ would continue for another three weeks but actively encouraged workers who were unable to work from home, to return to work from Monday.
From Wednesday, unlimited exercise outdoors would be permitted, and the Prime Minister hoped that by June 1st the UK would see a phased reopening of schools and shops. If the risk of a second wave of infections remains low, then by July 1st hospitality businesses and public spaces may reopen.
It may not be until late August when the entire economy reopens, which places the UK significantly behind other nations and suggests that the pound (GBP) may underperform against the currencies of economies set to open sooner.
Australia is also in a better position to recover due to having a significantly lower number of cases and deaths.
According to the World Health Organisation (WHO), Australia has 6,941 coronavirus cases and a death toll of 97, compared to the UK who have 219,187 confirmed cases and 31,855 deaths. As the coronavirus is more prevalent in the UK, the risk of exposure to COVID-19 is significantly higher, which may be increasing caution around pound Sterling (GBP) movement.
Risk-on trading continues to support the Australian dollar
New hope in the restoration of the global economy is fuelling the Australian dollar’s (AUD) strength in currency markets. Global risk sentiment has improved and, as economic activity is resuming, investors also expect the demand for energy and oil to increase.
The oil and energy industry has experienced sharp headwinds due to the coronavirus pandemic. Last month, US oil futures fell into negative territory which prompted a collapse in oil prices, but markets seem to be stabilising in May.
US-China trade tensions are also easing, and as China is Australia’s largest trade partner, positive Chinese data offers further support to the Australian dollar (AUD).
President Donald Trump accused China of being responsible for the outbreak and threatened to use retaliatory measures against trade tariffs. US congress said the US would not retaliate and on Thursday the first round of trade talks between the US and China went ahead, which investors took as a positive sign.
China is also leaping ahead of other countries regarding returning to normality, and Australia stands to benefit more from improvements in China than the UK due to the country’s strong ties to Chinese trade.
Though the UK government announced a lockdown exit strategy, the UK economy has a slow and arduous path to recovery. As a result, traders are positioning themselves for further weakness in the pound (GBP) and declines between the pound to Australian dollar (GBP/AUD) exchange rate.