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Pound Australian Dollar (GBP/AUD) Exchange Rate Stumbles as Covid-19 Vaccine Optimism Grows

December 30, 2020 - Written by Frank Davies

Covid-19 Vaccine Hopes Shore up Market Risk Appetite and Australian Dollar

Market optimism over the potential approval of an additional Covid-19 vaccine in the UK helped to keep the Pound to Australian Dollar (GBP/AUD) exchange rate on the back foot.

With AstraZeneca vaccine reportedly moving closer to approval for use in the UK markets were encouraged to maintain a generally bullish tilt.

Further progress towards the end of the Covid-19 crisis gave investors fresh reason to favour the risk-sensitive Australian Dollar over its rivals.

However, the Pound also benefitted from hopes that the virus situation in the UK could see improvement in the coming weeks.

Any increase in the rollout of Covid-19 vaccines could help to limit the ultimate economic impact of the latest social restrictions imposed over the Christmas break, offering support to GBP exchange rates.

Resilient Chinese Manufacturing PMI Forecast to Boost Australian Dollar

Even so, the mood towards the Australian Dollar could improve on Thursday morning with the release of the latest Chinese manufacturing PMI.

As the Australian Dollar commonly functions as a market proxy for confidence in the Chinese economy a stronger showing here may see AUD exchange rates pushing higher.

Forecasts suggest a slight loss of momentum on the month, however, pushing the headline index down from 56.4 to 56.

Nevertheless, as long as the manufacturing sector can demonstrate another solid month of growth momentum this is likely to offer a leg up to the Australian Dollar.

Signs of continued resilience within the world’s second largest economy would give investors reason to maintain their current bullish outlook, keeping risk-sensitive assets on a generally stronger footing.

A similarly positive showing from December’s finalised Australian manufacturing PMI could also give the Australian Dollar a boost next week.

Stable Housing Price Index Limits GBP/AUD Exchange Rate Downside

Another solid month of growth in the Nationwide housing price index helped to keep a floor under the GBP/AUD exchange rate, meanwhile.

With the UK housing market continuing to hold up, in spite of the ongoing Covid-19 crisis, worries over the outlook of the wider economy temporarily diminished.

However, with the end of the Brexit transition period imminent the prospect of further economic disruption appears likely.

If trading conditions show signs of friction at the start of 2021 this could leave the Pound vulnerable to another wave of selling pressure, as markets bet on the odds of a weak first quarter.

Given that the UK economy already faces slowdown pressures thanks to Covid-19 restrictions and existing border issues any fresh complications could weigh heavily on the GBP/AUD exchange rate in the days ahead.
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