GBPAUD witnesses both currencies moving stronger and US longer-term Treasury yields continue to rise

• GBPAUD narrows as both currencies get stronger
• US Treasury yields climbed more than 10bps overnight, pushing down equity and commodity markets

The Pound to Australian Dollar exchange rate outlook is getting softer as market demand for the AUD recovers and both currencies are moving upwards. Britain continues to vaccinate its population at a much faster rate than other major economies, contributing largely to the Pound’s strengthening in recent weeks. On the other hand, The Reserve Bank of Australia (RBA) published its latest meeting minutes overnight, containing no further surprises. RBA explained its reasoning to expand the current scale on QE but also indicated that negative interests were quite unlikely. This gives investors much confidence in buying the currency, lifting the demand on AUD.

In terms of economic indicators on the GBPAUD pair, tomorrow we will have UK’s inflation rate, which, however, is a little less impactful than Thursday’s Australian job market release. Australia’s job market is a key indicator of the nation’s economic health and if it comes out with surprises, AUD will likely be pushed up further. On Friday, the UK will also release its retail and PMI data. If they fall short of expectations, appeal on GBP will likely be dampened a little bit.

In the US, the 10-year Treasury yield climbed more than 10bps overnight to 1.321%, the highest level in a year. The rise has exerted further downward pressure on the equity and commodity market, as investors are trying to balance between reflation hopes and seemingly overstretched valuations. Currently, the S&P 500 index is trading with a PE ratio near 32.3, far above its five-year average of 21.2. In the commodity market, precious metal prices have been pulled back slightly, as the opportunity cost of holding non-yielding assets become higher with the rising Treasury yields. Gold prices, moreover, plunged 1.26% and broke below the $1,800 level, but oil prices stayed elevated primarily due to the cold blast in Texas which disrupted the crude oil production.