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Pound Australian Dollar Exchange Rate Steady amid Upbeat Mood

October 26, 2021 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Holds as UK Coronavirus Forecasts Provide Optimism

The Pound Australian Dollar (GBP/AUD) exchange rate is attempting to rebound on Tuesday, hovering below AU$1.84.

GBP exchange rates have received a boost from optimism over Covid-19 case rate forecasts in the UK, and upbeat data.

Amid risk-on trade, the risk-sensitive ‘Aussie’ is limiting losses against Sterling and is making gains against many of its peers.

Pound (GBP) Lifted by Covid-19 Forecast Optimism

The Pound has received a boost on Tuesday from modelling for the UK government that suggests Covid-19 infections could decline in the coming months.

Although the estimates are dependent on a number of factors, the data from the London School of Hygiene and Tropical Medicine (LSHTM) points to infections slowing down as the virus passes through younger ages groups.

Nearly half of all UK cases have been in the under-20s in recent weeks, suggesting there has been limited effect on older age groups, and that numbers of infections in that age group will go down having already had the virus.

The more positive mood was also fuelled by news that over half of over-50s have had their booster vaccinations.

Meanwhile, far better-than-expected Confederation of British Industry (CBI) distributive trades index figures further bolstered the Pound.

The survey reading jumped to 30 for October, beating forecast of 13, and up from 11 in September.

UK retailers reported a strong sales rise compared to September, but the survey also revealed that supply chain problems have driven stock levels to record lows.

CBI economist Ben Jones said:

"Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead"

Australian Dollar (AUD) Buoyed by Upbeat Market Mood

The Australian Dollar is strengthening against the majority of its peers at the start week, although AUD is down against a surging Sterling.

Risk-on trade is pushing the risk-sensitive ‘Aussie’ higher after market sentiment improved following reports of positive US-China economic talks.

China’s Vice Premier Liu He and US Treasury Secretary Janet Yellen discussed bilateral relations and the current macroeconomic situation, which includes the Evergrande crisis, US Treasury yields, and trade tariffs.

The talks were described as ‘constructive’, with the two sides ‘to up economic coordination’.

As a proxy to the Chinese economy, the Australian Dollar benefits from positive news from the country.

Meanwhile, rising commodity prices are continuing to underpin AUD exchange rates, with rising iron ore prices in China supporting the commodity-linked Australian Dollar.

Australian bond yields hitting their highest level since October 2020 further bolstered the Australian Dollar, driven by some investors’ expectations that rising inflation will mean the Reserve Bank of Australia (RBA) will tighten monetary policy much sooner than the central bank previously signalled.

Pound Australian Dollar Forecast: GBP/AUD Set for more Inflation-Driven Volatility

The key focus for AUD investors is the Australian third quarter inflation figures released overnight tonight.

Forecasts point to inflation slowing to 3.1% in the last three months, down from the second quarter reading of 3.8%.

Despite the RBA consistently reiterating its stance that it will likely keep interest rates low until 2024, markets have recently increased bets that a rate hike will come sooner due to soaring inflationary pressures.

Meanwhile, the UK government’s autumn budget will likely drive movement in GBP. Investors will look to the impact of spending plans on the country’s recovery and accompanying economic growth forecasts.

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