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GBP/AUD News: Pound Australian Dollar Exchange Rate Wavers ahead of Autumn Budget

October 27, 2021 - Written by John Cameron


GBP/AUD Posts Slight Gains as Risk Sentiment Fades

The Pound Australian Dollar (GBP/AUD) exchange rate has inched higher this morning as a risk-off mood dampens demand for the ‘Aussie’, although GBP’s gains are capped as investors await the autumn budget this afternoon.

The GBP/AUD pair is currently wavering at around AU$1.8313, up around 0.2% from this morning’s low of AU$1.828.

Pound (GBP) Edges Higher ahead of Autumn Budget

The Pound (GBP) has managed to tick higher against the Australian Dollar (AUD) this morning, as a risk-off shift in the market mood supports Sterling over the riskier ‘Aussie’.

However, the Pound’s upside is limited as GBP investors remain hesitant ahead of the autumn budget.

This afternoon, Chancellor Rishi Sunak will unveil his plans for the public finances. Sunak will try to strike an optimistic tone, arguing that the UK is ready to bounce back from the pandemic and create a high-skill, high-pay, green economy.

A number of measures included in the budget have already been revealed, so analysts will be paying particular attention to new or unconfirmed spending pledges and tax increases.

The budget comes at an uncertain time in the UK’s economic recovery, with both Brexit and the pandemic causing disruption and unpredictability. Inflation is soaring amid energy shortages and a global supply chain crisis, while the NHS faces buckling under a backlog of patients.

On the other hand, public borrowing has printed around 30% less than forecast so far this financial year, and recent predictions from the Bank of England (BoE) and the EY Item Club believe that both GDP growth and the economic fallout from the pandemic will be better than initially feared.

As such, GBP investors are holding back from placing bets until after the budget is announced, which means the Pound is trading in a narrow range this morning.

Australian Dollar (AUD) Eases Off Multi-Month Highs

The Australian Dollar, meanwhile, has softened so far in the European session after hitting a four-month high overnight.

The upside in the ‘Aussie’ came as Australia’s latest CPI printed higher than expected, increasing the likelihood of a rate hike from the Reserve Bank of Australia (RBA).

While headline inflation fell from 3.8% to 3%, the trimmed mean CPI – the RBA’s preferred measure of inflation – came in 0.3% above expectations, rising from 1.6% year-on-year in the second quarter of 2021 to 2.1% in the third.

This is the first time the inflation measure has exceeded 2% since 2015.

The strong CPI reading increased traders’ expectations that the RBA may tighten monetary policy earlier than originally planned. As a result, the Australian government two-year bond yield rose sharply.

An upbeat market mood overnight also supported AUD. However, risk appetite began to wane this morning, causing the risk-sensitive ‘Aussie’ to dip.

GBP/AUD Exchange Rate Forecast: Sterling to Gain following Volatility?

Around the time the budget is announced, we could see some volatility as pent-up trading energy is released. It’s possible that large initial movements will be subject to repositions and corrections as markets digest the Chancellor’s policies.

A key aspect in the Pound’s overall trajectory will be whether analysts believe the budget’s spending pledges are enough to compensate for soaring inflation, and whether tax rises will stifle growth or consumer spending.

In addition, the Office for Budget Responsibility (OBR) will publish its latest ‘Economic and fiscal outlook’ report. Economists expect the report to paint a brighter picture than the OBR’s last forecast in March, with an increase in GDP growth for 2021 and reduced economic scarring. If so, GBP/AUD could strengthen by the end of the day.

As for the ‘Aussie’, AUD investors will be looking to a speech from RBA Deputy Governor Guy Debelle overnight for any hawkish hints. In the meantime, risk appetite could be the main driver of movement in the Australian Dollar.

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