Pound Australian Dollar Exchange Rate Firms on Waning Risk Appetite
(Updated 15:50, 30/7/21) The Pound Australian Dollar (GBP/AUD) exchange rate has strengthened today, hitting a fresh 14-month high, as a souring market mood weighed on the risk-sensitive ‘Aussie’.
Renewed concerns over the beta variant of the virus may have played a part in shifting risk sentiment, while the below-expected PCE price index from the US may also have been a factor.
Meanwhile, optimism in the UK remains high. Despite Covid cases rising over the past few days, the numbers are significantly below the government’s projection models in the run up to ‘freedom day’. Some scientists are daring to hope that the pandemic may soon be behind us, thanks to herd immunity from natural infection or vaccination.
Neil Ferguson, an epidemiologist at Imperial College London whose work has shaped UK and US policy, said:
‘We’re not completely out of the woods. But the equation has fundamentally changed. The effect of vaccines has been huge in reducing the risk of hospitalisations and death. And I’m positive that by late September or October… we will be looking back at most of the pandemic.’
Original article continues below:
Pound Australian Dollar Exchange Rate Flat as Covid Cases Rise
The Pound Australian Dollar (GBP/AUD) exchange rate continues to trade in the region of AU$1.888, just shy of the pair’s 14-month high of AU$1.89278, which it hit yesterday.
The sustained strength comes as the Australian government deploys the military to enforce the lockdown in Sydney, with cases continuing to spread despite five weeks of restrictions. However, the Pound is being prevented from further gains as UK Covid cases are also on the rise.
Pound (GBP) Muted on Lack of Data
The Pound (GBP) is somewhat subdued today, as a lack of notable data releases leaves GBP to be driven by movements in its paired currencies.
Despite this the Pound is still holding its ground so far, with the Pound Australian Dollar pair hovering close to a 14-month high.
Sterling gained this strong position in recent days as UK Covid cases fell and positive data releases increased optimism in a robust economic recovery for the country. Most recently, the UK announced plans to scrap quarantine for fully vaccinated arrivals from the EU and US, which could boost the country’s tourism industry.
In addition, a cooling of Brexit tensions over the Northern Ireland protocol has helped GBP exchange rates. On Tuesday, the EU paused legal proceedings against the UK for breaching the Withdrawal Agreement to allow time and space for a solution to be found.
But while UK Covid cases have risen for the last two days, this hasn’t yet triggered a downside. Instead, Sterling seems to be rangebound, holding multi-week and -month highs against its rivals. It looks as though GBP investors remain hopeful over the UK’s progress out of the pandemic and towards economic recovery.
Australian Dollar (AUD) Down as Covid Situation Worsens
The Australian Dollar (AUD), on the other hand, is battling multiple headwinds today.
With Covid cases still on the rise in Sydney despite five weeks of restrictions, the regional lockdown has been extended by another month. The Australian government has deployed the military to transmission hotspots in order to ensure that Sydneysiders are following the rules.
Australia had previously escaped the worst of the pandemic through strict travel restrictions, but the current outbreak of the Delta variant is causing concern. Australia’s vaccination rollout has branded ‘a colossal failure’ by former Australian Prime Minister Malcolm Turnbull, with only 17% of Australian adults vaccinated.
The threat of the economic damage of ongoing lockdowns has been putting pressure on the ‘Aussie’. Economists estimate that each week of lockdown in Sydney will cost the wider Australian economy AU$1bn.
This morning, Australia’s producer price index printed below expectations, which is also weighing on AUD. The index rose by 0.7% in the second quarter of this year. While this was the highest rise since the third quarter of 2018, it was still well below expectations of 2.1%.
To top it all off, a risk-off shift in market sentiment is also sapping demand for the risk-sensitive ‘Aussie’, as Covid continues to create anxiety among investors.
Pound Australian Dollar Exchange Rate Forecast: Covid and Market Sentiment to Drive Most Movement
As the day goes on, a change in risk sentiment could help to bolster the Australian Dollar. Recent economic data from the Eurozone is positive, which could potentially contribute towards a more upbeat market mood.
Both GBP and AUD investors will be closely monitoring the Covid situation in each currency’s respective country. The Pound has so far managed to shrug off two days of rising Covid cases, but will it be able to sustain its highs if the infection rate rises further?