- GBP/AUD jumps half a percent

- Bank of England is key driver

- AUD headwinds as unemployment forecasts raised

- Westpac cut Aussie GDP forecasts for remainder of 2020

Image © Robyn Mac, Adobe Stock

GBP/AUD spot rate at time of writing: 1.8325Bank transfer rates (indicative guide): 1.7960-1.7820FX specialist rates (indicative guide): 1.7880-1.8170More on FX specialist rates, hereThe British Pound rallied by over half a percent against the Australian Dollar in the wake of the release of the August Bank of England monetary policy statement that saw policy makers indicate they were in no rush to cut interest rates or boost quantitative easing.

An unanimous vote to keep settings unchanged and a slightly more upbeat stance on the state of the UK economy combined to create a fresh bid for Sterling right across the FX market place, with the GBP/AUD proving to be no exception.

GBP/AUD rallied to a high of 1.8326 in the wake of the decision, a rise of half a percent from the day's open at 1.8234.

Further aiding Sterling was a view that the Bank was in no rush to cut interest rates to 0% or below, a concern that has been hanging over the currency for some weeks now.

"What has moved sterling though is that whilst the study into negative interest rates continues, the indication is that the BoE has “other tools available” still. Sterling bulls seem to have taken this well," says Richard Perry, an analyst at Hantec Markets.

The Australian Dollar meanwhile faces the conflicting forces of a broadly supportive global market backdrop and growing issues on the domestic front which sees economic forecasts lower and unemployment rate forecasts lifted owing to the local covid-19 pandemic.

"Overall, Aussie has been well bid, on the back of broad based US Dollar outflow. Still, with the risk outlook shaky, and worry associated with the coronavirus ticking back up (as reflected by the latest measures in Victoria), we suspect additional upside will be limited for the time being," says Joel Kruger, analyst at LMAX Exchange. "PM Morrison has also given traders an excuse to sell Aussie, after saying he believes the country's jobless rate will peak closer to 10% as a result of the Victoria lockdown."

Unemployment in Australia will peak at about 10% as a result of restrictions designed to slow the spread of the novel coronavirus, Prime Minister Scott Morrison said on Thursday.

Australia previously saw unemployment hitting a high of 9.25% this year. But after Victoria, the country's second-most populous state, ordered a six-week lockdown around Melbourne, unemployment will peak at about 10%, Morrison said.

The figure would climb when the number of people receiving the government's wage subsidy scheme were counted.

The effective rate of unemployment was estimated to climb to more than 13% after previously expecting a high of around 11%.

"That is very troubling but it is not unexpected," Morrison said. "These measures will have a very significant cost, and it will impact the recovery path."

Meanwhile, economists at one of Australia's largest lenders, Westpac, have cut their growth forecasts for the economy.

Westpac have revised down their growth forecast for 2020 based on the sharp reduction in activity in the state of Victoria owing to the level 4 lockdowns that have been recently introduced to stem the spread of covid-19.

"In total we now expect the Victorian economy to contract by 9% in the September quarter," says Bill Evans, Chief Economist, at Westpac.

Westpac have lowered national growth forecasts for the last two quarters of 2020 from 3.3% to 2.8%.

"That reflects the deterioration in the handling of the virus in Victoria and the emergence of some limited cases in NSW. However, our base case is for a significant reopening of both the Victorian economy and no major set- backs in NSW," says Evans. "Risks remain to the downside with the failure to contain the virus more than offsetting any possible fiscal policy response."