- GBP/AUD outlook dented by RBA optimism, virus slowdown.

- As AUD targets 0.6275 after overtaking GBP in race Vs USD.

- RBA hopeful it can do less QE amid new calm in bond market.

- As coronavirus advance on major economies begins to slow.

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- GBP/AUD spot at time of writing: 1.9968

- Bank transfer rates (indicative): 1.9229-1.9368

- FX specialist rates (indicative): 1.9627-1.9747 >> More information

The Australian Dollar outperformed Tuesday as investors serenaded an optimistic take on the outlook from the Reserve Bank of Australia (RBA) and an apparent slowdown in the spread of coronavirus, both of which are undermining the prospects of the Pound-Australian Dollar rate.

Australia's Dollar was lifted against all other than the Norwegian Krone Tuesday after the RBA left its cash rate and bond yield target unchanged at 0.25% before telling markets of hope that it might be able to avoid doing as much quantitative easing in the weeks ahead as it had once thought it might. It's still seeking progress toward the inflation target but calmer bond markets require less intervention to keep yields at the 0.25% level prescribed by policymakers.

"This seems reasonable given the overall tone of the policy statement," says Robert Rennie, head of financial market strategy at Westpac. "The lack of comment on the currency and the sense that the RBA would probably be happy to execute "smaller and less frequent purchases of government bonds" assuming "conditions continue to improve" added to the bid tone."

Above: Pound-to-Australian Dollar rate shown at daily intervals, alongside AUD/USD rate (black line).

The RBA had cut its cash rate from 0.50% to 0.25% and launched for the first time a quantitative easing programme designed to augment the stimulus provided by a lower cash rate, which was bad news for the Aussie because central bank acquisitions force down bond yields and reduce the appeal of the relevant currencies to investors. But renewed calm in markets and an apparent slowing of the coronavirus have given the RBA grounds for optimism.

Rennie sees the Aussie being "capped by the current highs at 0.6150," which is also the midpoint of Westpac's 'fair value' estimate, but has conceded that an ongoing recovery of investor risk appetite could easily push the AUD/USD rate beyond there. Technical analysts at Commerzbank say the Aussie may hit .6275 in the coming days but that its overall bias will remain to the downside unless 0.6275 is overcome on a daily closing basis.

Above: AUD/USD rate shown at daily intervals, with Fibonacci retracements of 2020 downtrend marked out.

"The Aussie was one of the most beaten down currencies within the G10 versus the US dollar on the deleveraging move into mid-March, but has rebounded smartly, with the RBA even floating the idea this morning of a QE taper," says Steen Jakobsen, chief investment officer at Saxo Bank. "A further squeeze on AUD positioning could bring the important 0.6200-50 zone into play."

The Aussie was still down 12% against the U.S. Dollar for 2020 on Tuesday despite a 1% intraday gain, evidencing the extent to which the commodity-backed currency has been buffeted by coronavirus and its previously relentless as well as indiscriminate march on all of the world's economies. But a series of lesser increases in new confirmed coronavirus infections within many major economies including Australia has given hope to markets this week that an end of the deadly viral pneumonia outbreak could be in sight.

Above: Johns Hopkins University graph showing daily increases in number of new coronavirus infections in Australia.

A slowing virus spread doesn't mean the so-called 'lockdowns' of economies, countries and people will end any time soon as lifting these could still be months away, although it does mean that a conversation might soon begin about the most appropriate time to do such a thing. And that's more than could be said just a handful of days ago, which is good news for all currencies but more so for the commodity-backed Aussie than it is Sterling.

"We remain unable to rule out a recovery to .6275 and possibly even .6458. However this is not our favoured view. A close above the .6671 October low is needed to alleviate immediate downside pressure and target the 200 day moving average at .6739," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank.

Above: Pound-Australian Dollar rate at weekly intervals, with Fibonacci retracements of 2016 downtrend marked out.

Australia's Dollar has a higher 'beta' correlation to investor appetite for risk assets than Sterling does, which means the Aussie tends to rise more against the U.S. Dollar than its British counterpart as the mood in the broader market brightens while suffering more as and when risk aversion spikes. This is important for the Pound-Australian Dollar rate outlook because that exchange rate is simply the sum of GBP/USD over AUD/USD.

An AUD/USD rate that rises faster than GBP/USD would produce a falling Pound-to-Aussie rate, as was the case on Tuesday, while an AUD/USD rate that rises to 0.6275 while the GBP/USD rate remains around 1.2333 would put the Pound-to-Aussie rate down at 1.9654. And a GBP/USD rate that creeps higher to 1.24 amid such an AUD/USD rise to 0.627 would produce a Pound-to-Aussie rate of 1.9760. Both are below Tuesday's exchange rate of 1.9987.

Meanwhile an AUD/USD rate that rises to 0.6453, the 61.8% Fibonacci retracement of the 2020 downtrend, as the GBP/USD rate reaches its 200-day moving-average of 1.2660 would produce a Pound-to-Aussie rate of 1.9618.