The Australian Dollar is on the back foot against other major currencies amidst growing concerns that the lockdowns triggered by coronavirus pandemic is taking a toll on economic growth. Growing talk of an imminent recession saw the AUD shed more than 1% against the British pound. The Australian dollar also weakened against the U.S Dollar with the AUD/USD pair tanking 0.2% to $0.6123.
Weakness in the Australian dollar comes on the backdrop of the Organization for Economic Co-operation and Development warning that economic growth could slow by 22% due to the Covid-19 pandemic. A shutdown put in place to mitigate the spread of the deadly virus is the latest headwind that economist fear could take a significant toll on the economy.
The OECD believes GDP growth could tank by as much as 6% should the national shutdown last more than three months. The shutdown has taken a toll on the demand for goods and services as people refrain from visiting retail outlets.
The Australian Dollar has also come under immense pressure, given its risk-sensitive. Further weakness comes hot on the heels of the World Bank warning of a potential global recession should coronavirus cases surpass the 800,000 marks. In view of the spiraling macroeconomic concerns, traders have continued to shun risk-sensitive currencies of the likes of AUD in favor of safe havens in the form of U.S Dollar and Swiss Francs
GBP Buoyed By Brexit Deal Optimism
Separately, the British pound strengthened against the AUD on optimism of extensions of the Brexit negotiations. With the Coronavirus pandemic in play, Brexit negotiations are currently on hold. Conversely, there is growing confidence that added time for negations could result in a post-Brexit trade agreement that was initially farfetched dream.
However, just like other currencies, the British Pound is also facing shocks emanating from the COVID-19 pandemic. With cases of infections as well as deaths rising in the Kingdom, there is already talk that the economy could suffer greatly. Economists have already warned that the pandemic could weaken the GDP in the first two quarters of the year, which could lead to further weakness in the British Pound.