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Pound Australian Dollar Exchange Rate Rangebound amid Risk-Off Trading

January 25, 2022 - Written by John Cameron

Pound Australian Dollar (GBP/AUD) Exchange Rate Trends Sideways as Markets Look to Safer Rivals

The Pound Australian Dollar (GBP/AUD) exchange rate has trended sideways today as a risk-averse market mood places pressure on both currencies. A further rise to the Australian rate of inflation may have also pushed the Australian Dollar (AUD) today.

At time of writing the GBP/AUD exchange rate is at around $1.8856, virtually unchanged from this morning’s figures.

Pound (GBP) Buoyed by fall in Public Borrowing despite Further Party Reports

The Pound (GBP) has ticked upward against its rivals this morning despite a risk-averse mood across the markets. Sterling has also struggled amid ongoing political uncertainty surrounding UK Prime Minister Boris Johnson, and international tensions at the Ukraine-Russia border.

Sterling may have been buoyed this morning by a greater than forecast fall in public sector borrowing, as the Office for Budget Responsibility (OBR) reported that the total for 2021/22 was currently running roughly £13 billion less than predicted. Despite the positive figures, analysts have warned that soaring global inflation may make it difficult for Chancellor Rishi Sunak to curb public finances.

Bethany Beckett, UK economist at Capital Economics, painted a mixed picture for Sunak:

‘Stronger tax revenues were just enough to offset big rises in debt interest costs in December. But we don’t expect this to last: further rises in inflation will mean borrowing soon overshoots the OBR’s forecast. Even so, our forecasts suggest the Chancellor still has enough fiscal space to cancel April’s rise in NIC taxes.’

Reports of further illegal lockdown gatherings at 10 Downing Street are likely to continue to pile pressure on Sterling however. As reported by ITV news on Monday, a surprise birthday party for Boris Johnson was held at No 10 on 19 June 2020 at a time when the Covid-19 restrictions prevented two households from mixing indoors.

Australian Dollar (AUD) Trends Narrowly Against Rivals as Inflation Soars

The Australian Dollar (AUD) has traded within a narrow range against its safer competitors today, as a bout of risk-averse trading and soaring inflation pushed the currency down. A surge in Covid-19 cases may also be placing downward pressure on AUD.

The Australian rate of inflation for the fourth quarter of 2021 rose to 3.5% above forecasts of 3.2%, and represents the fastest annual pace for inflation growth since 2014. The rate also sits well above the limits set by the Reserve Bank of Australia (RBA), increasing expectations of a rate hike by the RBA as early as May.

Callum Pickering, Asia-Pacific economist for Indeed, was concerned that measures taken by the RBA may not be enough to combat soaring inflation:

‘Australia has basically imported high inflation from abroad and it will be difficult for the RBA to meaningfully change that through tighter monetary policy.’

Any gains for the ‘Aussie’ may be further limited today by a drastic fall in business confidence. The index fell from +12 to -12 on Tuesday as Covid-19 cases hit both consumer spending and staffing levels. Businesses have reported concerns that worker shortages may continue to worse amid fears of a self-imposed lockdown by consumers this summer.

GBP/AUD Exchange Rate Forecast: Will ‘Partygate’ Report Harm Sterling Confidence?

Looking to the week ahead, Sterling could be pushed upward by business optimism figures later today. Forecasts are predicting the index to rise from 2 to 5 for the first quarter of 2022, with falling Covid-19 cases and the easing of the UK’s ‘Plan B’ restrictions possible drivers of the change.

The Pound could continue to see headwinds throughout the week however as faltering confidence continues to plague Boris Johnson. The expected publication this week of the report into ‘Partygate’ is also likely to prompt movement in GBP.

The Australian Dollar could climb on Friday should PPI figures for the fourth quarter indicate a fall as forecast. Any indication of easing inflationary pressures is likely to bolster confidence in the currency.

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