Pound Australian Dollar Exchange Rate Strengthens as USD Strength Dampens AUD
(Updated 17:00, 30/11/2021) The Pound Australian Dollar (GBP/AUD) exchange rate continues to firm this afternoon despite a lack of UK data, as a surge of support for the US Dollar applies further headwinds to risk-off currencies.
An unexpectedly hawkish testimony from Federal Reserve Chairman Jerome Powell shocked markets, as investors had been expecting dovish signaling pertaining to the unlikelihood of an imminent rate hike from the central bank.
Other central banks encouraged bearish trading, warning that the Omicron Covid variant would likely interrupt plans for monetary policy tightening.
Instead, Powell drew attention to strength in the economy, remarking that the most recent data shows elevated inflation pressures, rapid improvement in the labor market, and strong spending. He added that that it was time to retire the word ‘transitory’ as a description of US inflation – an indication that the door is open to earlier rate hikes.
The response of the Federal Reserve has widened the divergence in policy stance between the main central banks, including the Reserve Bank of Australia, further explaining AUD headwinds.
Original article continues below:
GBP/AUD Exchange Rate Firms despite lack of UK Data
The Pound Australian Dollar (GBP/AUD) exchange rate is climbing today as markets turn risk averse over the Covid-19 ‘Omicron’ variant. A decline in US 10-Year Treasury Bond Yields confirms the risk-off mood.
At the time of writing, GBP/AUD is trading at A$1.8685, up 0.3% from today’s opening levels.
Pound (GBP) Supported Against Risk-On Peers
The Pound (GBP) is trading in a mixed range as a lack of data exposes it to losses, while low risk sentiment provides support against perceived riskier assets.
Brexit headwinds continue to cap GBP gains, as a recent poll found that only 18% of UK citizens think Britain’s exit from the EU is going well.
Various officials are also blaming Brexit for the UK’s current migrant crisis. While about 8,460 migrants crossed the channel in 2020, more than 23,000 have done so this year- reporter Thom Brookes explains that:
‘In exiting the European Union, the UK left [the Dublin III Regulation]. This is an EU agreement among member states that if anyone sets foot in another EU country first, they can be returned to that country.’
Without a rule in place meaning British immigrants can be returned to where they came from, enforced returns from the UK are at a record low.
Also weighing upon the currency is speculation over the new Omicron Covid variant. The chief executive of the US drug-maker Moderna has predicted that existing vaccines will be less effective against Omicron than they have been against the Delta version.
Australian Dollar (AUD) Sinks on Bearish Trading
The Australian Dollar (AUD) is sliding down as investors trade cautiously amidst risk-off headwinds. A commodity currency, the ‘Aussie’ relies upon its export industry – this in turn depends upon foreign demand, which is lower in times of economic uncertainty.
Coronavirus cases continue to surge across Europe, with infection rates in Austria, Germany and the Netherlands already double those of last winter’s peak. In addition, the European Centre for Disease Prevention and Control (ECDC), said they have confirmed 42 cases of the new Omicron variant in the EU.
While the virus spreads and little is known about the effectiveness of current vaccines in providing immunity against it, risk aversion will likely persist.
New isolation measures in Australia are also countering the upside brought about by last week’s border reopening.
In separate statements released today, New South Wales Premier Dominic Perrottet and Victorian Premier Daniel Andrews said all returned overseas travellers must complete PCR testing before self-isolating at a nominated location.
Pound Australian Dollar Exchange Rate Forecast: ‘Aussie’ to Find Support on Chinese Data?
So far today, AUD has been suppressed by risk aversion, despite the release of upbeat data in China. As Australia’s biggest trading partner, Chinese tailwinds usually buoy the ‘Aussie’.
If the current market mood eases later on, the Australian Dollar may find support. Positive manufacturing data could also bolster AUD: the Ai Group manufacturing index will be released later in today’s session.