Pound Australian Dollar Exchange Rate Falls Steeply on Various Domestic Issues
(Updated 16:45, 08/12/2021) The Pound Australian Dollar (GBP/AUD) exchange rate has fallen sharply this afternoon as Sterling faces several external pressures while AUD continues to enjoy risk-on tailwinds.
Brexit headwinds have re-emerged over an impasse regarding the Northern Ireland protocol – on Tuesday, the DUP leader, Jeffrey Donaldson, said that the UK Government must show actions not words, warning that Northern Irish political institutions can only retain support if swift and decisive action is taken.
Covid concerns continue to exert GBP downside over predictions of mass contagion, with forecasts even bleaker now that media reports are citing an 85% chance of Plan B implementation. According to Reuters, new Covid rules are imminent, with home-working likely to be advised and vaccine passports mandated for visits to large venues.
Related to the above, investors have reduced bets of a Bank of England (BoE) interest rate hike next week. The Pound fell to a new 2021 low against the US Dollar today as money markets are now assigning a 46% probability of a 15 bps rate increase, down from nearly 70% two weeks ago.
According to strategists at Scotiabank:
‘The imposition of these restrictions – which are, we think, only a relatively small tightening of limits – is likely enough to keep the BoE from hiking next week as they will prefer to wait until the February meeting.’
Original article continues below:
GBP/AUD Exchange Rate Sinks on UK Covid Cases
The Pound Australian Dollar (GBP/AUD) exchange rate is falling this morning as cases of the Covid Omicron variant continue to rise across the UK. Meanwhile, the Australian Dollar (AUD) faces headwinds from geopolitical tensions.
At the time of writing, GBP/AUD is trading at A$1.8567, down 0.2% from today’s opening levels.
Pound (GBP) Subdued by Spread of Omicron variant
The Pound (GBP) is trending down today as concerns over the spread of the Omicron variant weigh upon Sterling sentiment. Britain reported 101 new cases yesterday, bringing the total number diagnosed to 437.
Adding to experts’ fears, an early study in South Africa has found Pfizer’s Covid-19 vaccine provides some protection from the variant, but does not guarantee immunity.
Researchers at the Africa Health Research Institute in Durban found that the drug resulted in an approximately 40-fold reduction in levels of neutralising antibodies produced by people who had received two doses of the Pfizer-BioNTech SE shot.
Some officials are warning that Covid cases could hit 90,000 a day by Christmas: expert opinion is divided, with one member of sage saying the figure is plausible but a ‘worst-case scenario’, while an epidemiologist at the UK Health Security Agency (UKHSA) reckons the estimate could be ‘slightly optimistic’.
Meanwhile, NHS leaders have cautioned that there are already ‘huge amounts of pressure’ on hospitals, with nervousness in the health service growing as doctors and nurses face the risk of catching the virus themselves.
Australian Dollar (AUD) Enjoys Risk-On Tailwinds
The Australian Dollar (AUD) is climbing against its peers as a risk-on market mood buoys trading sentiment. News that the Omicron variant is less aggressive has lifted spirits while China’s pledge to support economic growth continues to exert upside.
Also supporting the ‘Aussie’ are assumptions that the Reserve Bank of Australia (RBA) may speed up tapering plans early next year, given a cautiously optimistic tone in recent speeches: RBA Governor Philip Lowe commented alongside yesterday’s interest rate decision:
‘The Australian economy is recovering from the setback caused by the Delta outbreak. High rates of vaccination and substantial policy support are underpinning this recovery. Household consumption is rebounding strongly and the outlook for business investment has improved.’
Despite the central bank’s remarks that an interest rate hike will occur no sooner than 2023, some analysts believe this may change.
Forex broker CLSA Premium chairman Peter Boehm observes that while central banks in other countries starting to lift rates, the RBA may be forced to move earlier than anticipated.
Pound Australian Dollar Exchange Rate Forecast: RBA Speech to Direct Movement?
Looking ahead, a speech this evening from Governor Lowe this evening may have some influence on AUD trading – a hawkish tone is likely to lend the Australian Dollar tailwinds.
Also impacting the markets will be risk sentiment – given recent geopolitical tensions between the USA and Russia, bearish trading may ensue, weighing upon the risk-sensitive ‘Aussie’.