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Pound Australian Dollar Exchange Rate News: GBP/AUD Flat amid Mixed Market Mood

October 28, 2021 - Written by John Cameron


GBP/AUD Steady on Autumn Budget Analysis and Mixed Market Mood

The Pound Australian Dollar (GBP/AUD) exchange rate is flat today, as markets mull over yesterday’s UK autumn budget and its implications for the UK economy.

In addition, risk sentiment remains mixed, which is also keeping the GBP/AUD pair in a narrow range.

Pound (GBP) Steady as Markets Digest Autumn Budget

The Pound (GBP) is trading sideways against the Australian Dollar (AUD) today after mixed reactions to the UK’s autumn budget and economic forecasts.

Yesterday, the Office for Budget Responsibility (OBR) published its ‘Economic and fiscal outlook’ report, which revealed a more upbeat forecast for the UK’s economy this year.

Since its last report in March, the OBR has upwardly revised its projection for UK GDP growth in 2021 from 4.1% to 6.5%, as the economy bounced back faster than expected. The OBR also downwardly revised its expectations of economic scarring caused by the pandemic from 3% to 2%.

With the UK in a better economic position than many had expected, Chancellor Rishi Sunak used the autumn budget to unveil £150bn of government spending, striking an optimistic tone as he announced his fiscal policies.

However, both these supporting factors came with caveats, which seem to be keeping Sterling in a narrow range today.

Firstly, the OBR has since warned that the economic fallout of Brexit could be twice that of the pandemic. While the economic scarring caused by Covid has been downgraded to 2%, Brexit is expected to dent long-term UK GDP by 4%.

The forecast comes as tensions are escalating over rights for French fishermen to operate in UK waters. In the latest development, France has threatened to ban British fishing boats from some of its ports, impose stricter checks on cross-Channel trade, and restrict energy supplies to the Channel Islands.

The UK government has said it will respond with ‘appropriate and calibrated’ measures, stoking fresh fears of a trade war.

In addition, Sunak’s optimistic budget announcement is being undermined by criticism from opposition MPs and some economists. Critics are saying that the rises in taxes announced in the budget will hit British households the hardest, particularly at a time when the cost of living is rising exponentially.

With these mixed factors playing on the Pound today, GBP/AUD is wavering in a narrow range.

Australian Dollar (AUD) Flat amid Mixed Market Mood

Meanwhile, the Australian Dollar is holding steady as a mixed market mood leaves the risk-sensitive currency without a clear direction.

The ‘Aussie’ is also flat due to some ambiguous messaging from the Reserve Bank of Australia (RBA).

Yesterday, Australian inflation came in hotter than expected. In response, traders increased their bets for an earlier-than-expected rate hike from the RBA, thereby boosting AUD.

However, a speech overnight by RBA Deputy Governor Guy Debelle has given investors something to chew over.

Debelle said that a little more inflation is welcome but a lot more would be concerning, striking a fairly balanced tone. He also expressed optimism over the Australian economic recovery as the country emerges from Covid-related lockdown restrictions.

However, Debelle also seemed to downplay expectations of a rate hike. He said:

‘The monetary policy settings we have in place, as do other central banks around the world, are looking to generate a little higher inflation than we have seen over the last five, six years, as well generate more jobs.’

This suggests that Debelle believes the RBA’s current policy is apt and unlikely to change in the near future, but is also vague enough to leave the door open to future tightening of monetary policy.

GBP/AUD Exchange Rate Forecast: Risk Appetite Could Tip the Balance

This afternoon, GBP investors will be looking to see how economists analyse the autumn budget. If the overall consensus is favourable then GBP could edge higher, while criticisms could see Sterling slip.

Brexit news may also affect the Pound, with an escalation of tensions likely to dent GBP.

For the Australian Dollar, any shifts in risk appetite could see AUD rise or fall, depending on the market mood. The US GDP growth rate data may affect risk sentiment this afternoon, with any signs that the US economic recovery is slowing potentially denting risk appetite and thereby weighing on the ‘Aussie’.

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