Pound-Australian Dollar a Sell says Investment Bank
- China-lead global recovery to support AUD
- Aussies Early exit from lockdown to support AUD
- GBP to be weighed by massive BoE quantitative easing
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- GBP/AUD spot at time of writing: 1.9013
- Bank transfer rates (indicative guide): 1.8340-1.8480
- FX specialist rates (indicative guide): 1.8560-1.8840 >> more information
Pound Sterling is being tipped to fall against the Australian Dollar over coming days and weeks by strategists at Nomura, the global investment bank, who see a combination of pro-risk markets and Australia's early exit from lockdown as being two justifications for the stance.
An additional factor behind the call is the sizeable quantitative easing programme underway at the Bank of England, which should lump further downside pressure on Sterling.
While the Bank of England opted to not expand their current programme of quantitative easing at May's policy meeting, all signs are that an extension will be announced soon.
The size of the UK's quantitative easing matters for Sterling as the purchase of government bonds by the central bank lowers the yield offered by those bonds and other related financial assets, which in turn deprives the UK of inflows of foreign capital as global investors are no longer incentivised to buy the bonds.
"The BoE may not have thrown us any surprises today, but the pace of its QE operations is impressive and now has overtaken the Fed and the ECB in terms of % of GDP. As a result, UK real yields continue to decline," says Jordan Rochester, FX Strategist at Nomura.
Looking at the Aussie Dollar side of the equation, Rochester says Australia is earlier to relax its lockdowns with much lower growth in virus cases than that of the UK. "It stands to benefit more from the coming Chinese stimulus than the UK and GBP/AUD is showing signs of trending lower in a G10 FX market that is currently very range bound," says Rochester.
The Australian Dollar meanwhile remains one of the most compelling assets for investors to bet on a post-coronavirus global recovery, as it tends to appreciate against the majority of its peers when markets are rising.
The multi-week recovery continues and could well extend now that governments across the world are laying out their lockdown exit paths, something that should stimulate growth once more.
"With signs of lockdowns slowly being rolled back and even some news of early success in anti-viral drug trials risk sentiment continues to improve," says Rochester. "We positioned for this via short GBP/AUD last week and continue to see this downtrend being a worthwhile trade."
Nomura recommend clients sell Sterling against the Aussie Dollar from a spot exchange rate of 1.94; the pair is quoted at 1.9093 at the time of writing.
