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Pound Australian Dollar (GBP/AUD) Exchange Rate Rises as US-China Relations Sour

July 26, 2021 - Written by John Cameron

GBP/AUD Exchange Rate Edges Higher on Risk-Off Mood

The GBP/AUD exchange rate rose today following reports of a souring of relations between the US and China during the meting in the Chinese city of Tianjin. Chinese Ministry of Foreign Affairs reported that Beijing had described the relationship between the two countries as being in a ‘stalemate’. The pairing is trading around AU$1.87 at the time of writing.

Nick Marro, the global trade leader at The Economist Intelligence Unit, commented:

‘[I]t’s unlikely that the Chinese vice foreign minister’s comments are going to be well received by the US delegation, much less prompt a rethink in Biden’s wider strategy towards Asia.’

As a result, demand for the risk-sensitive ‘Aussie’ has fallen, with concerns that a fallout between the world’s two largest economies could hold back Australia’s economic recovery.

With China being Australia’s largest trading partner, souring relations between Washington and Beijing has left many AUD investors feeling cautious.

In absence of any notable Australian economic data today, AUD investors have become more sensitive to ongoing developments between China and news about the spread of Covid-19 throughout Europe.

Instead, investors have begun to seek out safe-haven currencies like the US Dollar and Euro.

Pound (GBP) Exchange Rate Edges Higher as UK Covid-19 Cases Fall for Five Days in a Row

The Pound (GBP) rose today after it was reported that UK Covid-19 case numbers had fallen for their fifth day in a row. This provided a boost to confidence in the nation’s economic recovery.

Paul Hunter, the professor of medicine at the University of East Anglia, however warned:

‘[The] figures do not, of course, include any impact of last Monday’s end of restrictions. It will not b until about next Friday before the data includes the impact of this change.’

Today also saw the EY Item Club predict that the UK economy could see its fastest economic recovery in 80 years.

Martin Beck, an analyst at the EY Item Club, said that the nation’s economic recovery depended on whether consumers were willing to spend money they had saved up during the pandemic months.

Beck said:

‘The assumption is that they will, but this is not guaranteed. The picture for consumers is not entirely positive: savings are concentrated among higher-income households, while higher unemployment and inflation will weigh on real income growth.’

As a result, confidence in the UK’s economy has picked-up, with demand for the GBP rising as the outlook for nation’s growth has improved.

GBP/AUD Exchange Rate Forecast: Could a Dovish RBA Drag Down the Australian Dollar?

Australian Dollar (AUD) traders will be looking ahead to tomorrow’s speech from the Reserve Bank of Australia’s (RBA) assistant Governor, Guy Debelle.

Could any downbeat comments about the effects of extended lockdowns in Australia drag down the ‘Aussie’?

Also in focus this week, US-China trade relations will take centre stage for AUD traders. Any signs of souring relations between the world’s two largest economies would be Australian Dollar-negative.

In absence of any strongly influential UK economic data this week, Pound investors will focus on the nation’s coronavirus developments.

Could we see the GBP/AUD exchange rate edge higher if daily Covid-19 infections continue to drop throughout the UK?

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