The AUDGBP exchange rate was 0.20% higher on Monday but the Aussie dollar is struggling to breakout above last week’s highs. A path to reopening in the New South Wales economy has boosted the currency but the pound was helped by comments from BoE governor Andrew Bailey. He said that inflation had “strengthened the case” for higher rates. Australia’s borders are also said to be opening in December.
The AUD to GBP exchange rate is trading at the 0.5316 and data is light for both economies this week.
Australian borders to finally open in December
Australia’s border will finally be opened by the end of the year to any states willing to accommodate overseas flights.
Fully vaccinated Australians will be able to head for international destinations before Christmas and will only have to quarantine for seven days. There will also likely be no travel bubbles imposed, with residents free to fly to any country.
Qantas has already confirmed it will offer flights for overseas holidays from December 18th and the airline’s boss Alan Joyce said Australia and its states “cannot stay closed forever and was pre-emptively offering the flights in hope holidays would be on the cards”.
The news is a boost for the Australian dollar as the country could see its hard-hit tourism industry receiving some much-needed funds. But that is only if it is accepted by all states. As with the cross-country reopening, some states are pushing back on the national reopening plan.
Bank of England sees higher rates due to inflation
BoE governor Andrew Bailey told the Society of Professional Economists on Monday evening that “all of us (in the MPC) believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target (of 2%) sustainably over the medium-term.”
The Governor said he was monitoring the situation, but he remains of the belief that many of the inflationary pressures are transitory. ECB President Christine Lagarde echoed the same word a day earlier as she talked of the eurozone price pressures.
Bailey said the economy was still in the recovery phase after the pandemic and that there were still ‘hard yards’ ahead.
“It is a saying that originated in sailing, though I associate it more with forward play in rugby,” he said.
“I, and other MPC members, have also used the analogy of a bridge to describe the role of economic policy… the bridge to the other side of Covid-19.
“We are still on that bridge.”
The inflation picture in the UK is not looking any better with fuel prices at eight-year highs due to a recent spate of panic buying. BP closed some retail units due to the shortage of HGV drivers and that led to panic-buying amongst the public.
The AUD versus the GBP has yearly lows near 0.5220 and a failure to break higher here could retest that level. The BoE is signaling a faster rate increase, while the RBA sticks to a 2024 timeline.