GBP/AUD: Bounces back above 1.82 to fade toward 1.7850 – Westpac

Earlier this month the Australian dollar hit highs against the British pound since December 2018. The cooler global risk mood in recent days has produced AUD underperformance but ultra-loose central bank policy settings should limit the duration of such pullbacks. Economists at Westpac expect bounces on the GBP/AUD pair to reach the 1.82 mark, however, the long-term forecast is 1.7850.

Key quotes

“The UK economy fell much more steeply than Australia’s in the peak pandemic lockdown period of Q2, -21.7%yr versus -6.3%yr in Australia. Since then Australia’s growth pulse has been modest, slowed by Victoria’s second lockdown. The UK has rebounded sharply but the new restrictions announced by the government this week will slow the recovery.”  

“Both the RBA and BoE are pursuing very expansionary monetary policy and both are open to further easing. Australia’s C/A position (surplus) is much more supportive than the UK’s, helping AUD against GBP. Ongoing unease over UK-EU trade negotiations also hang over the pound.” 

“Our baseline scenario over Q4 is for both AUD and GBP to trend higher against a vulnerable US dollar. Bouts of equity volatility driven by e.g. US election uncertainty should produce bounces in GBP/AUD back above 1.8200 but our central forecast multi-week/month is 1.7850.”