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GBP/AUD Forecast: Pound to Australian Dollar Exchange Rate Rises Ahead of US Fed Decision

January 27, 2021 - Written by John Cameron

GBP/AUD Exchange Rate Heads Higher as Risk Sentiment Sours

The Pound to Australian Dollar exchange rate rose by 0.6% today, with the pairing currently fluctuating around AU$1.78.

The Australian Dollar is struggling ahead of the US Federal Reserve’s interest rate decision.

As a result, demand for the risk-sensitive ‘Aussie’ has fallen, with global markets becoming concerned that the Fed could reveal a dovish outlook for the US economy.

Vincent Reinhart, chief economist at Mellon, said:

‘[Fed Governor Jerome] Powell is very good at accentuating the negative i.e. ‘We’re not even thinking about thinking about raising interest rates.’

In Australian economic data, today saw the release of the Consumer Price Index for the fourth quarter, which beat forecasts and rose to 0.9%.

Michell Marquardt, the head of prices statistics at the ABS, commented:

‘Since the June quarter fall of 0.3%, the increase in annual inflation largely reflects the unwinding of free childcare and higher petrol prices. The rise in demand for new dwellings is reflected in higher building approvals for houses and a record value for housing loan commitments.’

Pound (GBP) Exchange Rates Rise as UK Governement Hopes to Open Schools by March

The Pound benefited from encouraging comments from Prime Minister Boris Johnson today, who said that he now hopes to reopen schools throughout England from 8th March.

As a result, GBP investors are becoming more hopeful that UK Covid-19 lockdown measures could begin to ease in late February and early March.

However, concerns are growing over the UK economy after a row erupted between the UK and the EU over the Oxford-AstraZeneca Covid-19 vaccine.

Saleha Riaz, reporting for Yahoo Finance, commented:

‘The EU has said companies producing COVID-19 vaccines in the bloc will have to provide more information when they export their products, which could potentially hit vaccine supplies to the UK.’

‘Vaccines are believed to be crucial to getting economies back on track, as countries around the world continue to be hampered by virus-related lockdowns.’

Consequently, UK markets are becoming more jittery as the prospect of further political and economic uncertainties could limit the nation’s economic recovery going forward.

GBP/AUD Exchange Rate Outlook: UK Covid-19 Developments in Focus

The Australian Dollar will continue to be driven by risk sentiment this week, with any signs that the US – the world’s largest economy – struggling from the Covid-19 pandemic weakening the risk-sensitive ‘Aussie’.

However, if Covid-19 cases show signs of dropping in Australia, we could see the AUD/GBP exchange rate edge higher.

AUD investors will also be eyeing Chinese economic data this week.

Any signs that Australia’s largest trading partner’s economy is improving would be AUD-positive.

The GBP/AUD exchange rate could continue to head higher this week if the outlook for the UK economy continues to improve on hopes of an effective Covid-19 vaccine rollout.

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