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Pound Australian Dollar Exchange Rate News: GBP/AUD Buoyed as Evergrande Fears Weigh on Markets

October 21, 2021 - Written by John Cameron

Australian Dollar (AUD) Undermined by Gloomy Market Mood

The Australian Dollar (AUD) is trending lower against the Pound (GBP) and the majority of its other peers today as a deterioration in market risk appetite undermines the appeal of the risk-sensitive ‘Aussie’.

This gloomy market mood appears to be primarily driven by concerns over the potential collapse of China’s second largest property developer, Evergrande, and the potential contagion risk for the wider global economy.

The Evergrande crisis was thrust back into the spotlight overnight, following a sharp plunge in its share price, amidst fears the company could miss a looming debt deadline, as the firm warns there are ‘no guarantees’ it can meet its financial obligations.

Victoria Scholar, Head of Investment at interactive investor, said:

‘Overnight in Asia, Evergrande slumped more than 13% sparking risk-off sentiment across the major indices, as the embattled Chinese property giant came back onto the market after a trading halt that lasted more than a fortnight.

‘Having already missed a couple of bond coupon payments, default risk remains with fears around what a collapse of the systemically entrenched business would mean for China’s financial system and its wider economy.’

This has seen skittish investors shy away from riskier assets such as the Australian Dollar, amidst fears to potential collapse of Evergrande could ripple through both the Chinese economy and impact the wider global economic recovery.

Pound (GBP) Steady on BoE Rate Hike Expectations

At the same time, the Pound (GBP) is holding steady today as the focus for GBP investors remains on when the Bank of England (BoE) might next raise interest rates.

There has been some back and forth this week on whether this could take place as early as next month.

At the start of the session, on the back of comments from BoE governor Andrew Bailey suggesting the bank ‘will have to act’ to curb inflation, Sterling strengthened as GBP investors began to price in the possibility of a November rate hike.

However the odds for this appear to have fallen quite sharply since the publication of the UK’s consumer price index on Wednesday, after September’s figures revealed a surprise slowing of inflation.

Regardless of whether the BoE opts for a rate hike following its November meeting, GBP investors remain confident the next hike will come before the end of 2021, expectations of which continue to underpin the appeal of the Pound.

GBP/AUD Exchange Rate Forecast: Softening UK PMIs to Dent Sterling?

Looking ahead, the Pound Australian Dollar (GBP/AUD) exchange rate could face some pressure at the end of this week’s session with the publication of the UK’s latest PMI releases.

October’s preliminary figures are forecast to report that growth in the UK’s manufacturing and service sectors slowed again, potentially raising additional concerns over the trajectory of the UK’s economic recovery at the start of the fourth quarter.

In contrast, the publication of Australia’s own PMI figures could lend some support to the ‘Aussie’ later tonight as they are expected to report that activity in the private sector continued to improve as New South Wales emerged out of lockdown.

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