/GBP: Westpac: The Covid Contrast

Westpac note that "in the 2-month wave of US$ weakness to early January, A$ surged almost 9%, Cable about 4%. The rise in AUD in this time extended to almost AUD/GBP 0.5750 or GBP/AUD 1.74. It was consistent with the rally in global equities and commodities, along with AUD's typical role as a high beta anti-US$ play. Relative growth performance and prospects clearly reflect the divergence in Covid-19 experience. The UK economy fell much more steeply than Australia's in the peak pandemic lockdown period and even by Nov, UK GDP was still -8.9%yr versus our Q4 forecast of -2%yr in Australia. With Victoria rebounding faster than expected after lockdown and repeated days of zero national local Covid-19 transmission, the RBA is set to raise growth forecasts. In the UK, daily cases have trended lower this month but with a recent 7-day average of 29k, restrictions will deepen the economic hole the UK needs to dig out of later in 2021. The pace of the UK vaccine rollout does offer hope over the economic rebound however. The RBA and BoE will both review policy this week and likely maintain 0.1% cash rates and ongoing QE. On balance, the global risk mood seems jittery enough near term for sterling to extend towards AUD/GBP 0.5500 or GBP/AUD 1.8150. But AUD should resume its upswing even once the UK is recovering, with scope for 0.57/1.75 multi-week and a year-end forecast of 0.59/1.6950."