- AUD mixed on fresh coronavirus jitters

- GBP/AUD positively aligned, but momentum is weak

- Does not tend to perform well in this environment

- Markets to scrutinise Aussie data this week

- GBP/AUD spot: 1.9577, -0.13%

- Bank transfer rates (indicative): 1.8870-1.9000

- FX specialist rates (indicative): 1.9250-1.9380 >> More details here.

The Australian Dollar is mixed at the start of the new week, trading lower against the traditional 'safe haven' currencies such as the Dollar, Yen and Franc amidst a resurgence of coronavirus jitters in global markets. However the Australian unit is notching up some gains against the likes of Sterling and the Canadian Dollar.

There are some important data releases out of Australia this week that should leave a stamp on how the Aussie Dollar trades over coming days, however it appears that the market's binary reaction to coronavirus news will remain the predominant driver.

"The week started with heavy losses in Asian markets as the number of coronavirus cases outside China surged, spurring worries that it could become a global pandemic. At least ten cities in Northern Italy are quarantined and the Venice Carnival was closed," says Ipek Ozkardeskaya, market analyst with Swissquote Bank.

The Australian Dollar is often regarded as a proxy for exposure to the Chinese markets owing to Australia's heavy dependent on trade with China. Therefore, the coronavirus poses a particular challenge to Australia and losses in Asian markets typically tend to correspond with losses in the Australian currency.

Nevertheless, it's not all one-way traffic against the Aussie Dollar.

The Pound-to-Australian Dollar exchange rate is however marginally lower on the day at 1.9577, but the underlying picture remains one that favours the Pound over its antipodean cousin.

GBP/AUD has been trending steadily higher in 2020, although it has failed to advance beyond the January 31 highs at 1.9744.

The Pound fell steeply against the Australian Dollar at the start of the month with losses from 1.9744 to 1.92 being recorded over a mere four days and the remainder of the month has seen the Pound trying to recover those losses.

At this juncture, while we would hold a marginal bias in favour of further gains in Sterling, we would not be confident in seeing that January 31 high being hit again over the course of the next week, unless there is a material negative development in either Australia's domestic data or the coronavirus outbreak.

Nelson Aston, Economist at St. George Bank in Sydney sees reasons to be cautious on the outlook for the Australian economy, saying "it will be a challenge for economic growth to return to the Reserve Bank of Australia's (RBA) forecast of trend this year."

One factor that is providing support for the Australian Dollar is the RBA's relatively sanguine stance on the impact of the coronavirus, saying they see the impact as being largely transitory and as such they are not yet minded to cut interest rates further.

The outlook for the Australian Dollar could well depend on how long this stance is maintained, the big downside risk for the currency is the RBA turning more cautious and warning that further interest rate cuts might be required.

"The coronavirus presents an acute problem for Australian economic growth. Not only does China account for an overwhelming proportion of Australian commodities exports (not limited to iron ore; seafood, meat and other commodities end up in China as well), but many of our services exports rely on Chinese activity. Containment measures to slow the spread of the virus are likely to have a significant impact on the education and tourism sectors," says Aston.

Aston says that unlike with goods exports, it is unlikely that these losses will be recouped in later quarters due to “catch up” demand.

"The longer travel bans and other containment measures are in place, the greater the risks of a longer-lasting impact to the Australian services sector through reputation and sentiment damage," says Aston.

The data out this week could give some clues as to whether the RBA is justified in maintaining their relaxed stance on the economic outlook.

Construction work done for the fourth quarter is due on Wednesday - it therefore covers the period before the major impact of the coronavirus and bushfires was felt − markets are looking for a reading of -0.1%.

Private business capital expenditure for the fourth quarter is released on Thursday and the market is looking for a reading of 0.4%.

"Private credit extended to the economy in January will be released on Friday. It will be closely watched by the RBA who has said that it was balancing the benefits of monetary policy easing with the risks of unabated credit growth brought on by low rates. We forecast a 0.2% increase in private sector credit over the month," says Aston.

So while there is a good deal of data on the docket, it is backward looking and does not tell us much about the key bushfire and coronavirus period. Therefore, it might be another week of wait-and-see for investors when it comes to the Australian Dollar.