The AUD to GBP exchange rate was higher by 0.35% on Thursday as traders weigh up the latest budget from the UK Chancellor. Rishi Sunak confirmed much of what was already known and traders are taking a cautious stance on the pound after recent strength in the Aussie economy.
AUDGBP is still trading below the 0.5600 figure, which has been a magnet for prices since the start of February.
Sunak Budget Pleases Sterling Bulls
UK Chancellor Rishi Sunak delivered his second Budget as finance minister and his first since the pandemic ravaged the country’s economy.
The measures implemented by Mr Sunak were largely expected by the markets after being leaked in the country’s media. The headline was a rise in corporation taxes from 19-25% for larger companies from 2023, while allowances will be frozen on income tax until 2026.
The Budget also saw the furlough program extended to the end of September as the country has still seen struggles in the jobs market. Funding was also provided for trainee schemes and apprenticeships with youth unemployment at 14%.
The UK government spent £400bn in the last fiscal year and this will be a headwind for the pound sterling going forward. The country will need to see a strong bounce when the economy reopens, or the AUDGBP could continue higher. The decision to delay the corporate tax rise has probably saved the pound in the near-term and other nations are in the same boat with debt levels. The Australian economy is an exception with debt-to-gdp at 45%, while the UK sits at 100%.
Aussie Bulls Still Buoyed by GDP
Aussie dollar traders were still boosted by the Australian economy, which saw GDP growing at a faster rate in the fourth quarter of 2020. The economy grew 3.1% in the final quarter, compared to estimates for a 2.5% increase and there was also an upward revision to third quarter data.
Traders are now increasing their support for the Aussie dollar as the task at hand for the UK finance minister was laid bare.
Australia has been boosted by lighter lockdown restrictions and the recovery of China, which has increased demand for Australian exports, especially iron ore. The Reserve Bank of Australia held interest rates steady at 0.1% in the last week, while they also avoided any further stimulus after a recent doubling of bond buying capability. The risk to the Aussie is in the bond market after last week’s increase in key bond yields saw a big sell-off in emerging currencies and commodities. This took the AUDGBP lower by around 80 pips.
The AUD to GBP exchange rate is looking for direction from the 0.5500 – 0.5600 range and the strength of the UK’s recovery could dictate the path ahead. To discuss these factors in further detail feel free to get in touch using the form below.