Pound Australian Dollar (GBP/AUD) Exchange Rate Trades Sideways amid Modest Risk Appetite
(Updated 16:30, 13/9/21) The Pound Australian Dollar (GBP/AUD) has continued to waver in a narrow range today, as a risk-on mood supports the risk-sensitive ‘Aussie’.
The current bullish market sentiment comes amid a Deutsche Bank survey that shows cautious optimism among investors.
While 58% of the surveyed market professionals expect a market correction of 5-10% by the end of the year, 31% believe that we will reach the end of 2022 without a tumble. Additionally, even with a 10% correction, most pandemic-era gains will remain intact thanks to this year’s strong recovery.
So far in 2021, America’s S&P 500 has climbed by over 18%, the European Stoxx 600 has gone up 17%, and the UK’s FTSE 100 has risen by over 9%. Since the crash of March 2020, global markets have almost doubled thanks to government spending, central bank stimulus packages, and optimism over the rollouts of Covid vaccines.
While the survey does suggest cautious optimism, worries about a correction – as well as other concerns – may keep a lid on risk appetite.
This may be providing the ‘Aussie’ with some support today, but it’s offset by rising Covid cases in Australia as the country sees its most infectious day of the outbreak this year.
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Pound Australian Dollar (GBP/AUD) Exchange Rate Drops from Two-Week High
The Pound Australian Dollar (GBP/AUD) exchange rate retreated from its two-week high this morning and is now wavering in a narrow range as the tailwinds from last week’s hawkish Bank of England (BoE) comments die down.
Meanwhile, the ‘Aussie’ is finding support amid rising commodities prices and a slightly more optimistic outlook on Australia’s vaccination rollout.
Pound (GBP) Foundering as BoE Afterglow Fades
The Pound (GBP) has had a rather lacklustre beginning to this week’s trade, as a lack of data leaves the currency vulnerable to some of last week’s lingering headwinds.
First off, it seems that the afterglow from BoE Governor Andrew Bailey’s hawkish comments in front of parliament last week is starting to fade, removing a key supporting factor for the Pound. Yet many of the tailwinds persist.
A key challenge for GBP is the successful government vote last Wednesday to raise national insurance contributions for both employees and employers, which dented GBP last week.
The decision was rushed through parliament amid considerable criticism from business groups, economists, and opposition MPs. Since then, an impact assessment by HM Revenue and Customs has hinted at the fallout the tax hike could have for families and businesses:
‘The measure is anticipated to have a significant macroeconomic impact, with consequences including but not limited to for earnings, inflation and company profits. Behavioural effects are likely to be large, and these will include decisions around whether to incorporate or not, and business decisions around wage bills and recruitment…
‘There may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.’
Meanwhile, Covid cases, hospitalisations and deaths are continuing to rise in the UK. Alarmingly, the numbers of Covid-related deaths and patients admitted to hospital are now higher than the July peak, as high infection numbers have been sustained.
With some scientists calling for a ‘firebreak’ lockdown, Boris Johnson will be revealing his Covid Winter Plan on Wednesday. While he is not expected to announce any new restrictions, the worsening coronavirus situation is still weighing on GBP.
Australian Dollar (AUD) Buoyed by Rising Commodities
Turning to the Australian Dollar (AUD), the ‘Aussie’ is firming today, despite concerns over rising Covid cases, inflationary pressures and the winding down of pandemic-era stimulus packages causing some anxiety in global markets.
The modest upside in AUD seems to be driven in part by rising commodities prices, with coal, petroleum and gold – some of Australia’s key exports – making gains today. Increased global demand for commodities has boosted the ‘Aussie’ in recent weeks, with Australia’s trade surplus hitting a record high earlier this month.
Vaccine optimism may also be boosting AUD exchange rates, as the country’s vaccination rollout has accelerated exponentially over the last few months. The percentage of fully vaccinated adults is now at 33.7%, around double what it was one month ago.
Over the weekend, Australia secured a further one million Moderna vaccine doses, with the Australian government planning to target Covid hotspots in Melbourne in the hopes that localised lockdown restrictions can be lifted.
The new delivery comes as the government launches a campaign urging citizens to get vaccinated amid high vaccine hesitancy and anti-lockdown protests.
With a slightly more optimistic outlook on Australia’s Covid situation, the Australian Dollar is managing to hold its ground against Sterling so far today.
GBP/AUD Exchange Rate Forecast: Risk Aversion to Dent the ‘Aussie’?
While the GBP/AUD exchange rate is currently trading in a narrow range, the ‘Aussie’ could face some headwinds as the day goes on.
Market sentiment held fairly steady this morning, but there are a number of factors that could increase risk aversion as the afternoon unfolds.
Inflationary pressures are building, Covid cases are rising, and many analysts expect a stock market correction as we near the final quarter of this year. Additionally, with most central banks looking to wind down stimulus packages relatively soon, investors are concerned about less favourable economic conditions.
If these jitters translate into a large shift in risk sentiment, the risk-sensitive ‘Aussie’ could slip and GBP/AUD may strengthen.