Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as Risk Appetite Improves

Pound Australian Dollar (GBP/AUD) Trades Sideways on Improving Market Mood

(Updated 16:20, 21/10/21) The Pound Australian Dollar (GBP/AUD) exchange rate has traded in a narrow range today as markets recovered from the news of Evergrande’s failed sale.

News that the debt-laden property giant China Evergrande was unable to go ahead with a key asset sale overnight triggered anxiety among investors early this morning, but the market mood has improved over the course of the European session.

This slight increase in risk appetite has prevented the Pound (GBP) from making further gains against the riskier Australian Dollar (AUD), despite upbeat data showing that UK public borrowing this year is far lower than economists expected.

Data from the Confederation of British Industry (CBI) also kept a lid on the Pound, as the CBI business optimism index for the fourth quarter of this year slumped to just 4, well below expectations of 15 and down from the previous quarter’s reading of 27.

However, ongoing expectations of an imminent Bank of England (BoE) rate hike continue to provide a tailwind for Sterling, preventing any significant losses.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Firms on Risk-Off Trade and UK Data 

The Pound Australian Dollar (GBP/AUD) exchange rate is ticking higher today, as a gloomy market mood dampens demand for the more risk-sensitive Australian Dollar (AUD). 

The Pound (GBP), meanwhile, is catching bids after UK public sector borrowing printed below expectations, sparking cautious optimism in the UK’s economic recovery. 

Australian Dollar (AUD) Falls as Evergrande Fears Rattle Markets 

The Australia Dollar is extending its overnight losses into today’s European session as the Chinese Evergrande crisis causes markets to once again cloud over. 

Shares in the debt-laden property giant slumped overnight after a $2.6bn asset sale fell through. Evergrande had been planning to sell a 50.1% stake in its Evergrande Property Services arm to a smaller rival. However, the deal collapsed, reigniting worries about the company’s future and contagion risks to China’s economy. 

The company is China’s second-largest property developer, and it currently owes $305bn in debts which it is unable to repay. Since last month it has been trying to sell off assets for cash to pay creditors, but has so far been broadly unsuccessful. 

If Evergrande collapses, it would affect other sectors of the Chinese economy before rippling out into global markets. 

With this fear weighing on investors, they’re shunning riskier currencies today – such as the Australian Dollar – in favour of safer assets. 

Pound (GBP) Firms on Fall in Public Sector Borrowing 

Meanwhile, the Pound is strengthening against the ‘Aussie’ today, after public sector borrowing printed lower than expected. 

The UK government borrowed £21.8bn last month. While that is the second-highest September figure on record, it is £7bn less than September 2020 and below economists’ forecasts of £22.6bn. 

So far this financial year, the government has borrowed £108.1bn. This is far less than the £151.1bn which the Office for Budget Responsibility had expected and almost half the amount borrowed during the same period last year. 

The positive results come a week before Rishi Sunak, Chancellor of the Exchequer, sets out the autumn budget. 

Speaking about September’s borrowing figures, Sunak said: 

‘Our recovery is well underway – with more employees on payrolls than ever before and the fastest forecast growth in the G7 this year – but the pandemic has had a huge impact on our economy and caused our debt levels to rise. 

‘At the Budget and Spending Review next week I will set out how we will continue to support public services, businesses and jobs while keeping our public finances fit for the future.’ 

This cautious optimism has given the Pound a modest boost today, allowing it to capitalise on the weakening of the ‘Aussie’. 

GBP/AUD Exchange Rate Forecast: Will the Risk-Off Mood Prevail? 

Risk appetite will continue to play a part in the GBP/AUD exchange rate today. If the market mood recovers this afternoon then the Australian Dollar could regain some ground. 

UK Covid news could also influence the pair. With daily Covid cases nearing 50,000 in the UK, NHS leaders are urging government to reintroduce some restrictions. Any negative developments could put downward pressure on the Pound. 

Samuel Birnie

Contact Samuel Birnie