Pound-Australian Dollar: HSBC Forecast Sharp Declines in 2021

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• GBP/AUD spot rate at time of writing: 1.8053
• Bank transfer rate (indicative guide): 1.7420-1.7540
• FX specialist providers (indicative guide): 1.7620-1.7890
• More information on FX specialist rates here

The Pound is forecast to experience a notable decline in valuation against the Australian Dollar in 2021 by analysts at HSBC, who say a Brexit deal won't be enough to prevent a decline.

The Australian Dollar is meanwhile identified as a 'top pick' currency for the year ahead as it is expected to benefit from a global economic recovery, a backdrop that tends to benefit this pro-growth currency.

"The AUD remains one of our favourite G10 currencies," says Paul Mackel, Head of FX Research at HSBC. "By contrast, we are more cautious on GBP, and EUR."

As key fourth quarter 2020 event risks fade into the rear-view mirror, HSBC see little to stand in the way of the Australian Dollar's rally.

"We continue to expect the AUD and NZD, for example, to appreciate against the USD. The AUD still looks cheap relative to its terms of trade and is well placed to capitalise on mainland China’s economic recovery, politics notwithstanding," say Mackel.

HSBC forecast the AUD/USD exchange rate to rise to 0.75 by year-end and further to 0.80 by mid-2021.

"The RBA’s recently announced AUD100bn QE programme is aimed at catching up to other central banks’ balance sheet expansions. The issue for AUD bears is that fresh QE announcements expected by the likes of the ECB in the coming months should see the RBA fall behind again. Meanwhile, yield differentials should struggle to compress and the experience of RBNZ QE suggests no adverse impact on cross-border portfolio flows," says Mackel.

Mackel acknowledges there may also be lingering concerns over trade restrictions imposed on exports to China, but he notes while the list of goods reportedly targeted has risen, the combined total value of the targeted sectors only comprise around 5% of export revenues.

HSBC analysts are of the view that a new U.S. administration may temper geo-political tensions, while the ongoing rally in the value of the Chines Yuan is positive for the Australian Dollar.

With regards to the outlook for Pound Sterling against the Australian Dollar, HSBC are bearish on the UK currency's prospects saying that even if a trade deal is agreed with the EU the Pound will have to adjust lower as trade frictions rise.

"These increases in frictions and likely worsening of competitiveness for UK companies demand a bigger discount for GBP," says

HSBC forecast the Pound-to-Australian Dollar exchange rate to trade at 1.73 by year-end, 1.66 by the end of the first quarter of 2021, 1.56 by the middle of 2021 and 1.56 by year-end.

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