GBP/AUD Exchange Rate Steady Ahead of Mini-Budget
The Pound to Australian Dollar (GBP/AUD) exchange rate is currently holding in a narrow range this morning as UK Chancellor Rishi Sunak prepares to unveil his 2020 Spending Review.
At the time of writing the GBP/AUD exchange rate is trading at around AU$1.8163, virtually unchanged from this morning’s opening rate.
Pound (GBP) to Face Pressure from Gloomy Review?
While the Pound (GBP) appears to be holding its ground so far this morning, the currency could face some headwinds later this afternoon as Chancellor Rishi Sunak delivers what is likely to be the toughest Spending Review of living memory.
Sunak will use the mini-budget to lay out his plans for a post-pandemic economy, which is likely to include a freeze on public-sector pay, NHS funding and new infrastructure plans as part of the government’s commitment to ‘levelling-up’ the UK.
Rishi Sunak says public sector pay freeze is not a return to austerity https://t.co/MAGuTlRmVf
— Guardian Business (@BusinessDesk) November 22, 2020
While additional spending measures will be welcomed by GBP investors, questions are likely to hang over how these will be funded, with the ballooning of the UK’s budget deficit likely to result in higher taxes in the future.
The Spending Review will be accompanied by the latest forecasts from independent spending watchdog, the Office for Budget Responsibility (OBR).
These are expected to report that the UK is on track for its largest economic slump in over 300 years, with domestic GDP forecast to contract over 10%.
While this is slightly better than the 13% contraction predicted, the dire outlook is still sure to cause some concern among GBP investors, particularly as the OBR is also expected to warn of a stark rise in unemployment in 2021.
Australian Dollar (AUD) Undermined by Disappointing Housing Data
At the same time, the Australian Dollar (AUD) is struggling to find support this morning, following the release of some underwhelming domestic housing data.
According to data published by the Australian Bureau of Statistics (ABS), construction work done in the third quarter declined 2.3%, this was down from the 0.7% slump in Q2 and below forecasts for a 2% contraction.
The decline in construction activity appeared to driven mostly by the extended lockdown in Melbourne, with economists optimistic on the chances of a rebound in the fourth quarter as restrictions across the country were eased.
GBP/AUD Exchange Rate Forecast: Brexit Talks in the Spotlight
Looking ahead to the second half of the week, is looks safe to assume that movement in the Pound to Australian Dollar (GBP/AUD) exchange rate will be driven by Brexit sentiment.
While reports have suggested that the UK and EU are close to reaching a post-Brexit trade deal, there are still doubts that an agreement can be reached in time, as officials warn that some key gaps remain.
Meanwhile, in the absence of any notable AUD data releases in the latter half of the week, the ‘Aussie’ is likely to remain sensitive to market sentiment.
This could see the Australian Dollar give some ground if coronavirus concerns start to weigh on sentiment once more.