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GBP/AUD Exch Steady as Australia Slips 

The Pound to Australian Dollar (GBP/AUD) exchange rate is holding steady as Australia slips into deflation. The GBP/AUD exchange rate holds close to a one-week high. This is in the wake of some gloomy inflation figures from Australia.

The GBP/AUD exchange rate is trading at around AU$1.8068. Abysmal CPI Figures have been pressuring the Australian Dollar (AUD). It found itself on the back foot in early forex trading today, in the wake of Australia’s consumer price index.

Domestic inflation plummeted from 0.3% to -1.9% in the second quarter. This is according to data published by the Australian Bureau of Statistics (ABS).

This startling collapse in inflation pressure placed Australia in its first state of deflation for 22 years. The ABS has reported this was the largest quarter-on-quarter fall on record.

The dramatic plunge in inflation is of course attributed to the coronavirus crisis. Analysts warn the deflationary pressures are likely to persist for some time. This is while Australia appears to be over the worst of its outbreak.

Despite many of the shocks being one-offs that are set to be reversed, said senior economist at Westpac Justin Smirk,  the COVID shutdown has shifted what they thought were signs of a recovery. This would go to a broader mixed outcome with signs of an underlying deflationary trend in many series again in Q3.

The slump in inflation is also likely to ensure the Reserve Bank of Australia (RBA) maintains its accommodative monetary policy. That is the status quo for the foreseeable future.

 

GBP Gains Capped as UK Relations Sour

The GBP appears to be running out of momentum in the FX market. Investors increasingly express their concerns over the UK’s souring relations with Europe, China, and even the US.

Brexit has stoked tensions between the UK and EU for some time now. Boris Johnson’s recent decision to re-impose a two-week quarantine on travelers returning from Spain has made matters worse.

Tensions with China continue to flare up after the UK’s decision to exclude Huawei from its 5G rollout. Moreover, Johnson’s visa offer to three-million Hong Kong residents also angered Beijing. This is all happening at a time when the UK is seeking new trading partners.

Meanwhile, in forex news, the dollar traded lower in early European trade on Wednesday. It languished near two-year lows, amidst doubts the U.S. economic recovery and the Federal Reserve concluding its meeting.

At 3 AM ET (0700 GMT), the Dollar Index was down by 0.2% at 93.507. It was not far removed from the 93.448 low last seen in May 2018.

It continued to lose ground both against haven and risk currencies with USD/JPY down 0.1% at 104.97. EUR/USD rose 0.3% to 1.1753.

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