- AUD is best performing major currency of past 2 weeks

- Gains spurred by improvement in stock markets

- Huge superannuation drawdowns could aid further gains

- Latest consensus GBP/AUD forecasts are out, please visit Global Reach to find out more.

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- GBP/AUD market rate at time of publication: 1.9594

- Bank transfer rates (indicative): 1.8917-1.9054

- FX specialist transfer rates (indicative): 1.9127-1.9427 >> More information

An improved global backdrop continues to aid a rally in the Australian Dollar, but we are wary that this week could see the positive sentiment amongst investors challenged as U.S. corporations release their earnings for the first quarter.

The Aussie Dollar is a currency that remains highly correlated with broad investor sentiment, tending to fall when markets are selling off and lift when markets are rising. Investors believe that the worst of the coronacrisis has now come to pass, with many Western economies seeing infection and death rates either plateau or start to decrease.

News that Spain has lifted some restrictions and that France has put in place its own exit strategy suggest conditions in Europe will continue to improve over coming weeks, meanwhile the death rate in the U.S. appears to have stabilised.

"Commodity currencies outperformed in the Asia session. Fed programs to improve USD liquidity, higher oil prices, a slowing in new coronavirus cases and better than expected Chinese trade data for March all supported commodity currencies such as AUD, NZD and CAD. We expect the extra liquidity programs by the Fed to further weaken the USD this week," says Kim Mundy, a foreign exchange strategist with Commonwealth Bank of Australia.

The Pound-to-Australian Dollar exchange rate has now fallen for six trading days in a row, giving a rate of 1.96 at the time of writing. The U.S. Dollar has likewise lost purchasing power and is USD/AUD is now quoted at 0.6403.

Above: GBP/AUD daily chart.

"The Australian Dollar has been the best performing G10 currency over the past two weeks, gaining over 4% versus the U.S. Dollar. For the most part, AUD/USD has closely tracked the S&P 500, or broad risk sentiment, in line with its typical historical beta," says George Cole, an analyst at Goldman Sachs.

However, Cole says temporary changes to the country's pension regime could be offering additional support to the Aussie Dollar.

In response to the coronacrisis, Australia's government has allowed those in financial stress to access up to A$20,000 held in their pensions in the next five months. Australia's superannuation pension industry expects as much as A$50 billion ($31 billion) to be withdrawn over the next five months, causing liquidity problems for some funds, but potentially providing an extra leg of stimulus to the Aussie Dollar.

Above: AUD/USD tracks S&P 500

"An idiosyncratic factor seems to be lending some additional support to AUD," says Cole, "in preparation for these withdrawals, funds need to sell overseas equities and convert the returns to domestic currency—resulting in upward pressure on AUD from sales of any unhedged holdings—and initial reports suggest take-up will be significant."

There could therefore be a short-term flavour to the Aussie Dollar's period of outperformance based on this observation.

Goldman Sachs anticipate an extension of the Australian Dollar's recent gains, provided global markets continue to improve. "However, our more cautious stance on markets means any AUD upside will probably be relatively short-lived and would likely see AUD/USD move back towards mid-March levels if equities turn lower," says Cole.

Chinese Trade Data Aids Aussie Dollar Gains

The Aussie Dollar slumped at the start of the year when the coronavirus crisis shut down China, confirming the currency to be a proxy for investors looking to gain exposure to Asia. But with China having now exited its lockdown and starting to recover and its economy starting to recover, it is understandable that the Australian Dollar is benefiting.

Sentiment towards China improved on the back of some better-than-expected trade numbers: Exports (YoY) for March read at -6.6%, which is better than the -14.0% markets were expecting and an improvement on February's -17.2%.

Imports (YoY) for March stood at -0.9%, a beat on the -9.5% expected and a great deal better than Februarys' -4.0%.

The overall Trade Balance in USD term for March read at 19.90B, better than the 18.55B expected and the -7.09B reported in February.

"China’s announcement of stronger than expected trade numbers have pumped up markets to start the week positively. The data suggests that while we haven’t seen the full damage of a closed Europe and US, intra-Asian trade has remained strong with a faster recovery by some economies allowing trade routes to remain relatively open," says Jeremy Thomson-Cook, Chief Economist at Equals. "The AUD is one of the stronger currencies this morning following the news from China."