The Pound Australian Dollar exchange rate rose today as risk-sentiment has soured following a tense start to US-China discussions, with Beijing describing the relations between the world’s two largest economies as being at a ‘stalemate and faces serious difficulties’. This has limited the appeal of the risk-sensitive ‘Aussie’, with China being Australia’s biggest trading partner.
What’s Been Happening: AUD Suffers From Extended Australian Lockdowns
The Pound Australian Dollar rose over the past week thanks to growing confidence in the UK’s economy following England’s lifting of lockdown restrictions on July 19.
Last week also saw UK consumer confidence return to pre-pandemic levels. The GfK consumer confidence gauge beat forecasts and rose to -7 versus June’s -9.
Joe Staton, GfK’s client strategy director, recommended caution, however, saying:
‘[T]hreats from increasing consumer price inflation, COVID variants and rising infection figures, pand] the looming end of furlough … could put the brakes on this rebound.’
The latest flash UK composite PIMI also saw the nation’s private sector growth at a fourth-month low because of a shortage of staff and materials hindering July’s recovery.
Australia’s economic outlook continued to deteriorate, however, with the state of Victoria including Sydney facing an extended lockdown period.
Combined with rising concerns over the Delta coronavirus variant, demand for risk-sensitive currencies like the ‘Aussie’ were compromised.
Three Things to Watch Out for This Week
- UK Covid-19 Developments
We could see the Pound head higher this week if UK Covid-19 infection rates continue to drop. This would buoy confidence in the outlook for the British economy going forward.
- US-China Relations
If meetings between US and Chinese officials in Tianjin, China, continue to sour this week, then we would see the GBP/AUD exchange rate suffer as global trade relations deteriorate.
- Australian Inflation Data
Wednesday will see the release of the latest Reserve Bank of Australia’s inflation report for the second quarter. Could extended lockdown periods have wrecked havoc on the nation’s economic recovery?
Pound Australian Dollar Forecast
The GBP/AUD exchange rate could continue to head higher this week as confidence in the UK’s economy steadily returns.