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Pound Australian Dollar Exchange Rate Flat amid Mixed Sentiment

October 14, 2021 - Written by John Cameron

GBP/AUD Rangebound on Mixed Sentiment

The Pound Australian Dollar (GBP/AUD) exchange rate is wavering in a narrow range today, amid mixed data from Australia and both positive and negative domestic news from the UK.

The pair is currently trading at around AU$1.8508, virtually unchanged from this morning’s opening rate of AU$1.85096.

Pound (GBP) Upside Undermined by Industry Warnings

The Pound (GBP) is trading in a narrow range against the Australian Dollar (AUD) today, as conflicting factors play on the Pound.

Supporting Sterling are expectations of a Bank of England (BoE) rate hike and a positive development in the Brexit dispute over the Northern Ireland protocol.

Hawkish commentary from some key BoE officials in recent weeks has led traders to predict a rate hike as early as December this year. If so, the British central bank will be one of the world’s first major banks to raise interest rates.

Also bolstering the Pound today is news that the UK government is considering a proposal from the EU that aims to end the deadlock over the Northern Ireland protocol.

The EU has offered to remove around 80% of checks on foods entering Northern Ireland, a huge concession that many hope will resolve the months-long impasse.

However, there are factors preventing GBP’s upside against AUD, including concerns that the UK government may reject the EU’s proposal.

The UK’s Brexit Minister, Lord Frost, has agreed to enter new negotiations with no ‘red lines’, although he repeated his belief that the current protocol should be scrapped in favour of an entirely new agreement. As such, officials from Brussels are ‘preparing for the worst’.

Also capping the Pound’s gains are renewed concerns that the energy crisis could cause factories to close this winter, dealing a huge blow to the UK economy.

Speaking to ITV last night, Sir Jim Ratcliffe – the founder of chemical multinational Ineos – said that, without state support, industry could shut down:

‘Economically… we’re in a bad place as it is after Covid so you don’t really need to be shutting industry down, and that’s not great for British industry if we’re telling all our customers we can’t supply them.’

These comments came shortly after the UK steel industry warned of a ‘full blown steel crisis’, urging government to offer state support.

Rishi Sunak, Chancellor of the Exchequer, has hinted that the government will help industry, but his comments also dampened hopes of state financial support. Sunak said:

‘We’re prepared to work with business and support them as required. It wouldn’t be appropriate for me to comment on the particular situation of any individual company.

‘But in general I believe in a market economy, as it’s served us very well in this country. It’s not the government’s job to come in and start managing the price of every individual product.’

Australian Dollar (AUD) Rangebound on Mixed Data

Meanwhile, the Australian Dollar (AUD) is trading sideways today amid a risk-on market mood and mixed employment data overnight.

In September, the unemployment rate in Australia rose from 4.5% to 4.6%. However, this was better than expectations of a rise to 4.8%.

In addition, Australian employment declined marginally more than was forecast. But this was offset by an unexpected increase in full-time employment, with the employment decline driven by a loss of part-time jobs.

Another factor keeping the ‘Aussie’ in a narrow range may be a revision to Australia’s growth forecasts from the International Monetary Fund (IMF).

The IMF has downgraded Australia’s projected growth from this year from 4.5% to 3.5%, signalling the biggest downward revision of any OECD nation.

However, Australia’s growth for next year has been upgraded, as has the country’s employment outlook.

With these mixed factors playing on AUD, it’s currently wavering against the Pound.

GBP/AUD Exchange Rate Forecast: Pair May Continue to Trade Sideways

As today’s session progresses, we may see GBP/AUD continue to struggle for direction.

That said, risk appetite could play a part in the GBP/AUD pair. If market sentiment sours – perhaps due to a new surge in gas prices – then Sterling could gain the edge.

Looking at the Pound, any updates on the UK government’s support for industry or response to the EU’s Northern Ireland protocol proposal could influence GBP.

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