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Pound Australian Dollar Exchange Rates: GBP/AUD Rallies as New Covid Variant Spooks Market

November 26, 2021 - Written by John Cameron

Australian Dollar (AUD) Suffers Risk-Off Mood due to Covid Variant

The Australian Dollar is losing ground against the Pound so far this morning due to risk-off sentiment despite positive retail sales for October.

October’s retail sales were released during the overnight session which showed an increase of 4.9%, beating the previous month’s 1.3% and the forecast 2.5%. However, this data has been overshadowed by the risk-off mood.

AUD is suffering from a newly detected strain of Covid-19 which is spreading across South Africa.

Despite the recent easing of lockdowns in Victoria and New South Wales, the riskier ‘Aussie’ is struggling amid risk-off sentiment as investors favour safe-haven assets.

Australia’s health minister, Greg Hunt, said:

‘The world is learning and looking [at] the strain.

At this stage they are gathering information [but] we’re flexible and if the medical advice is we need to change then we won’t hesitate.

Our spare vaccines are being provided but beyond that we’re also working directly through the Covax program.

South Africa is doing everything it can to encourage vaccination within its population and to continue to expand its distribution network, but there are different challenges in different countries.’

Amidst the uncertainty over the new Covid-19 variant, the risker AUD is likely to remain suppressed through to the end of this week’s session.

Pound (GBP) Buoyed by BoE Comments

The Pound has been climbing against the ‘Aussie’ since the opening of today’s session due to being regarded as less risky asset.

On Tuesday, Bank of England’s (BoE) policymaker, Jonathan Haskel, made some hawkish comments with regards to hiking rates.

Haskel said:

‘We should maintain a long term perspective. The pandemic was the worst shock to hit the UK economy in 100 years.

In my view the prospective rise in bank rate from its emergency level — when that comes — is not a bug, but a feature. It reflects the success of the policies, mostly fiscal, health and science that have supported the economy over the pandemic.’

Andrew Bailey, BoE Governor, has been previously accused of wrongfully signally rate hikes. However, in his most recent speech on Thursday, he vowed to restrain inflation expectations.

Bailey said:

‘Obviously, in a world which is much more uncertain as to whether things will happen, then it's much more hazardous to give that guidance.’

Moreover, the Brexit negotiations continue to limit the Pound’s potential as the fragility of the UK’s relationship with the EU keeps GBP investors cautious.

GBP/AUD Exchange Rate Forecast: Pound to Weaken amid Data Forecast

Looking ahead, the ongoing Brexit negotiations are likely to limit Sterling’s gains against the ‘Aussie’ as the UK-EU talks regarding the Northern Ireland protocol remain uncertain.

Furthermore, throughout next week, the Pound may be dented by October’s BoE Consumer Credit which is forecast at £-0.6B, falling considerably from the previous month’s £0.2B.

Meanwhile, AUD is also expecting weak data releases in the coming days. Australia’s third quarter GDP print is forecast to report a 4% contraction of growth, a drop from the 0.7% expansion in Q2, and October’s Balance of Trade is predicted to slip to AU$11B from AU$12.243B.

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