- AUD up on GDP beat, lesser burden from rate differential.

- GDP up 0.5% as Fed cuts U.S. rates 0.5% in one swoop.

- Fed cut narrows gap between AU:U.S. rates, aiding AUD.

- Soc Gen says buy AUD/USD, eyes a recovery toward 0.75.

- Says AU among best placed to cope with coronavirus crisis.

- As charts suggest AUD/USD is bottoming after -9.5% fall.

Image © Desiree Caplas, Adobe Stock

- GBP/AUD Spot Rate: 1.9341, down -0.71% today

- Indicative bank rates for transfers: 1.8679-1.8814

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The Australian Dollar advanced across the board Wednesday following better-than-expected GDP data for the final quarter and is being tipped to go further in the coming days as interest rate differentials become less of a burden and as the coronavirus crisis takes a heavier toll on other currencies.

Australia's Dollar advanced against all major rivals after official data revealed faster-than-anticipated growth for the final quarter last year, placing the economy in an improved position ahead of anticipated damage stemming from bushfires and the unfolding coronavirus crisis. GDP growth was 0.5% last quarter, down from an upwardly revised 0.6% in the prior period but ahead of the consensus for growth of only 0.4%.

The Pound-to-Australian Dollar rate was down -0.70% at 1.9339 and near to the levels prevailing at the beginning of the month, with the British currency weaker against all major rivals other than the safe-haven Japanese Yen as it lagged risky counterparts in a rebound off the week's low, although renewed concerns about the prospect of a 'no deal' Brexit at year-end risk making the Pound a chronic underperformer again.

Above: Pound-to-Australian Dollar rate at weekly intervals alongside AU-U.K. 2-year bond yield differential (black line).

The GDP beat has provided a tailwind to an Aussie that already had a spring in its step heading into Wednesday after the Federal Reserve (Fed) announced an emergency 50 basis point rate cut cut that took the Federal Funds range down to between 1% and 1.25%, leaving it just 75 basis points above Australia's newly-lowered cash rate of 0.50%. It was 100 points higher on Monday.

The Reserve Bank of Australia (RBA) cut its cash rate from 0.75% to 0.50% Tuesday, but the impact of the move on the Australian Dollar has now been more than offset by the Fed's actions. And it could be offset further still if the Fed does as markets think it will do and cuts rates again before the year is out. Strategists at Societe Generale say that this as well as Australia's budget and current account surpluses mean the Aussie is well placed to weather the storm whipped up in the global economy by coronavirus.

"The AUD has bounced as global risk sentiment has improved, but it is still at extremely weak levels, priced for continued economic weakness at home and in China. The huge shift in relative rates that dragged it down against the dollar is beginning to correct, and the Australian authorities' crisis response is helped by having current account and budget surpluses. BUY AUD/USD at 0.6620," says Kit Juckes, chief FX strategist at Societe Generale.

Above: AUD/USD rate shown at daily intervals alongside AU-U.S. 2-year bond yield differential (black line).

Juckes told clients to buy the AUD/USD rate at 0.6620 and target a move up toward 0.75 over the coming months because the narrowing gap between interest rates in Australia and the U.S. will alleviate what has been a long-term pressure on the Aussie. The AUD/USD rate has fallen -9.8% since the beginning of 2018 as the Aussie economic outlook darkened at a time when Fed rate hikes were set to widen the rate differential.

He says persistent downgrades of the Aussie growth outlook have taken expectations down to a level that could now elicit a positive surprise in terms of its performance. He also says Australia's budget surplus means the government will be able to deliver the kind of stimulus that economies will really need in order to get past the disruption caused by the spread of viral pneumonia outside of China, which could disrupt some parts of some economies.

"The G7 are 'ready to act' and the market has priced in significant monetary accommodation around the world. But fiscal policy might be a better tool," Juckes says. "As the virus spreads, Australian growth has a better chance than most of matching pessimistic expectations. The RBA has room to ease further, but it is the combination of current account and budget surpluses which provides greater easing ammunition than exists elsewhere."

Above: AUD/USD rate shown at weekly intervals alongside AU-U.S. 2-year bond yield differential (black line).

Australia's economy has for years been too weak to deliver the growth necessary to produce the inflation pressures the Reserve Bank of Australia is obliged to deliver, leading to interest rate cuts and more pressure on the Aussie. But the severity of the Aussie's recent punishment combined with the fact the U.S., Japan, UK and other major economies are all now on the verge of coronavirus outbreaks could provide the Antipodean with a window for outperformance that's precluded by the charts.

Coronavirus cases outside of China surpassed 10,000 Wednesday, with more than 80% of new cases in Italy, Iran and South Korea, while more than 100 domestic cases and two deaths have been reported in the U.S.

Meanwhile, the UK's case number has risen to 51 and the government has sought desparately, using its 'action plan', to reassure the public that an outbreak can be managed. Across the Channel in Italy infections have risen to 2,263 in barely a fortnight, with 79 succumbing to the disease.

"AUD/USD is correcting higher near term and has reached its accelerated downtrend at .664m" says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank. "The market will have to overcome the accelerated downtrend at .6641 and the October low at .6671 on a closing basis to alleviate immediate downside pressure and target the 200 day ma at .6836. This guards the .6933 January high."

Jones says divergence between AUD/USD prices, which fell to a new decade low this week, and the relative-strength-index that failed to confirm the new low could mean the Aussie is "at the end stage of a longer term down move" and that caution is warranted. She's advocated that clients buy the AUD/USD rate on any dips back to the 0.65 level, with a stop-loss set around 0.6430.