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GBP/AUD Forecast: Pound to Australian Dollar Exchange Rate Jumps Higher as UK Political Anxiety Eases

May 10, 2021 - Written by Frank Davies

Pound (GBP) Exchange Rates Rally Sharply Thanks to UK Economic Optimism

The Pound to Australian Dollar exchange rate rallied sharply at the start of the week thanks to a fresh wave of optimism over the UK outlook.

As the Scottish Nationalist Party (SNP) failed to secure an absolute majority in last week’s local elections the risk of any new independence referendum diminished.

Investors also took encouragement from the stronger-than-expected Halifax house price index data, which pointed towards the continued resilience of the UK housing market.

As prices picked up 1.4% on the month in April this offered further encouragement in the prospect of a stronger second quarter of economic activity.

A sense of optimism over the next phase of easing in national lockdown conditions also helped to buoy the appeal of the Pound at this stage.

Australian Dollar (AUD) Exchange Rates Benefit from Surprisingly Strong Business Confidence

Although April’s NAB business confidence index bettered forecasts this was not enough to give the Australian Dollar a boost against the Pound.

Even so, AUD exchange rates generally found support on the back of the unexpectedly strong uptick in the confidence index.

As the index jumped from 17 to 26 on the month this suggests that the Australian economy remains on track to deliver a stronger bout of growth in the months ahead.

With the economy continuing to shake off the negative impacts of the ongoing pandemic the mood towards the Australian Dollar naturally improved.

The ongoing weakness of the US Dollar, in the wake of a disappointing non-farm payrolls report, offered additional support to AUD exchange rates on Monday.

GBP/AUD Exchange Rate Forecast: Rising Chinese Inflation May Shore up Australian Dollar Demand

With the Chinese inflation rate expected to pick up tonight the Pound to Australian Dollar exchange rate could come under renewed pressure.

As the Australian Dollar remains a key market proxy for sentiment towards the Chinese economy any uptick in inflationary pressure could give AUD exchange rates a boost.

Strengthening market risk appetite could help the Australian Dollar to increase its strength, even if the HIA new home sales data fails to impress.

If the Australian housing market shows signs of cooling this could put AUD exchange rates under a degree of pressure.

However, the greater challenge to the strength of the GBP/AUD exchange rate is likely to come on the back of Wednesday’s set of UK gross domestic product data.

Confirmation that the UK economy experienced a contraction in the first three months of the year could weigh heavily on the Pound, even with investors optimistic in the prospect of an imminent recovery.
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