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- GBP/AUD Spot Rate: 2.0169, +0.88% on publication

- Indicative bank rates for transfers: 1.9476-1.9617

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The Australian Dollar was on the front line of a global riposte against the U.S. Dollar Friday, lagging only Sterling in a rebound off multi-decade lows as central banks sought to ease funding shortages and tame a greenback that's grown so strong it could imperil the global economy and finanical system.

The Federal Reserve (Fed), Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank announced collectively on Friday they will be stepping up efforts to increase the supply of U.S. Dollars to cash hungry corporations and money managers following an unprecedented meltdown in global financial markets that's stoked such fierece demand for the greenback it sent shockwaves across all financial markets.

Those five other major central banks have long had standing Dollar swap lines with the Federal Reserve, the cost of which was reduced last Sunday evening, that enable them to tap a large off-market supply of the U.S. currency for liquidity purposes. The six central banks will now carry out 7-day maturity operations on a daily basis rather than each week, increasing significantly the level of central bank U.S. Dollar liquidity.

The announcement came a the U.S. Dollar fell following a similar action taken on Thursday, with Pound Sterling as well as the Australian and New Zealand Dollars leading the charge against the greenback. The Pound-to-Australian Dollar rate was 0.88% higher at 2.0169, leaving it up 6.79% for 2020.

Above: Pound-to-Australian Dollar and AUD/USD (black line) rates, both shown at hourly intervals.

"The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements...The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad," - Federal Reserve.

An FX swap is an agreement to buy one currency (Dollars) with another off-market and then sell it back to the counterparty on a prearranged date at a pre agreed price. These transactions would enable other central banks to sell large clips of the runaway Dollar on the open market and buy back their domestic currencies, lifting the domestic currencies against the Dollar in the process. Doing this enables those central banks to counter the inflation and growth threat posed by currency devaluation without burning through precious foreign exchange reserves. And it might also lead other central banks to do the Fed a favour while paying for the privilege, seeing as a rapidly strengthening Dollar could hurt an already-in-trouble U.S. export sector and further stoke the ire of President Donald Trump, who’s ever breathing down the bank’s neck.

The Fed already extended Dollar swap lines to an additional nine central banks on Thursday including the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank, the Bank of Korea, the Banco de Mexico, the Norges Bank, the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank. The AUD/USD rate rose more than 100 points to reclaim the 0.58 handle during the Thursday session while the Pound-to-Australian Dollar rate tumbled briefly below the 2.0 handle at the same time.

Above: Pound-to-Australian Dollar and AUD/USD (black line) rates, both shown at monthly intervals.

"The past few days have been marked by accelerated and coordinated cooperation across Central Banks to contain financial markets and avoid systemic dysfunction. The aim has been to avert a broader crisis in financial systems from the current cash-flow crisis hitting economies. The latter has to be countered by fiscal policies assisted by CBs providing liquidity and funding vehicles in abundance," says Tim Riddell, a London-based strategist at Westpac. "This coincided with a further rebound in AUD and NZD (thoguh whether it was causal remains unclear)...Provisions of liquidity have also been vital, as we saw from BoE yesterday and Fed as well as many other CB’s."

Central banks disclose little about their day-to-day activities so it’s not possible to determine with certainty whether the swap line extension explains part of Friday’s global riposte against the U.S. Dollar, although Pound Sterling and its antipodean counterparts led the charge against the greenback but were previously seen at the bottom of the major currency barrel amid the earlier exodus from risk assets and non-USD currencies.

Thursday and Friday's actions come after an eight day surge in the greenback that lifted the Dollar index by 7.8% from trough to peak, while crushing all other currencies to such a degree that devaluation could now act as a further headwind to the affected economies by raising the cost of much needed imports and lifting inflation, which can reduce real GDP growth. The Dollar surged after stock, commodity and typically safe-haven bond markets collapsed as investors liquidated portfolios and rotated into cash at a rate of knots and to a degree that’s not been seen since at least the financial crisis.

"The market is overstretched and in need of some near term consolidation," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank, of the AUD/USD rate. "Currently the Elliott wave count is implying a recovery to .6000, .6210 and possibly even .6360. However we have a double Fibo just below .6100 and this is our preferred corrective target. Below .5500, there is little until the .4775 2001 low."

Above: GBP/USD and AUD/USD (black line) rates, both shown at monthly intervals.

Friday's price action came as California went into 'lockdown' after U.S. coronavirus cases surged from less than 2,000 to more than 14,000 this week, amid increased testing. New York, Washington and California are the hotspots for the U.S.outbreak. Italy, where deaths outpaced those of China, remained the epicentre in Europe but there have been continuing sharp increases in other major economies this week. The Australian reported Friday that Prime Minister Scott Morrison and his government could also be moving toward the kinds of 'lockdowns' implemented in California, which were first used in China before being embraced at the national level by Italy, Spain and France.

The greenback suffered losses while U.S. bonds lagged rivals in a rally that took place amid the plethora of central bank interventions, after the Senate moved ahead with a coronavirus related spending plan that includes ‘helicopter money’ for households and bailouts for entire industries. The UK, France and others announced spending measures worth double-digit percentages of GDP this week, to support economies through what is increasingly a sudden stoppage brought on by the coronavirus pandemic.

Investors appeared to revolt over the spending plans of already highly indebted governments, voting with their feet when fleeing financial markets and again when bidding largely for Dollar cash with the proceeds of other asset sales, leading to a sharp spike in bond yields, although some economists offer a different explanation for price action.

“Market volatility and economic uncertainty means that preference for staying ‘liquid’ has risen across a range of market participants. Both money fund and asset managers may want to hold more cash in anticipation of redemptions. Corporates may want to draw on their credit revolvers to maintain enough liquidity. System-wide, this can result in an increase in demand for cash,” says Praveen Korapaty, an economist at Goldman Sachs.

Above: UK's FTSE 100 index alongside Australia's S&P 200 index (black line), both shown at monthly intervals.