- AUD to outperform in 2021 says MUFG

- GBP/AUD to rise into year-end, but fall next year

- AUD/USD seen rising towards 0.73

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GBP/AUD spot rate at time of writing: 1.8040Bank transfer rate (indicative guide): 1.7400-1.7535FX specialist providers (indicative guide): 1.7622-1.7900More information on FX specialist rates hereForeign exchange analysts at global investment bank and financial services provider at MUFG have told clients they are raising their forecasts for the Australian Dollar, saying an Asia-led economic recovery stands to benefit Australia and its currency.

The call comes amidst building momentum behind the Australian Dollar which rallied 4.50% against the Dollar, 1.50% against the Pound and 2.0% against the Euro in November, thanks to a strong improvement in investor sentiment linked to news that a number of covid-19 vaccines have been shown to be effective and safe.

"The Australian dollar surged in November in response to the positive news on the probable roll-out of vaccines that could now come sooner than originally expected," says Derek Halpenny, Head of Research, Global Markets EMEA and International Securities at MUFG in London.

Positive results from Pfizer, Moderna and Astra-Zeneca mean vaccinations will likely start before the end of the year with much wider distribution in the first quarter of 2021.

The UK announced on December 02 that its regulator had approved the Pfizer candidate for use and the government has indicated the vaccine's rollout would commence in the week starting December 07.

The development of a vaccine has lead markets to reprice the global economic outlook, bringing forward the time they believe the global economy will be freed from the effect of covid-19.

This has lead to a rally in 'value' stocks and commodities, to which the Australian Dollar is positively aligned:

MUFG add that the election of Joe Biden in the US has further reinforced the positive global growth outlook with the years of uncertainty in relation to global trade wars under President Trump possibly a thing of the past.

Despite elevated political tensions between Australia and China triggering a series of tariff hikes and import restrictions, growth in China's economy will continue to benefit those Australian exporters that China cannot afford to penalise.

"China may benefit most from this which is helping fuel renewed investor demand in Asia as a whole," says Halpenny.

Flow data from Bloomberg meanwhile shows foreign investors have bought record amounts of South Korean, Taiwan equities and substantial buying elsewhere.

"Australia’s proximity and ties to Asia will help fuel demand for Australian securities as well," says Halpenny, who adds that Japanese flow data confirms.

MUFG - a Japan-headquartered bank - says Japanese investor purchases of bonds in the 6-month period to October showing a record total, JPY 2.3TRN.

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"The RBA in November added to its QE program with an explicit aim to dampen loner-term yields which may temper demand for fixed income from Japan but we do not see QE as driving yields lower – global reflation will be more important and if the COVID vaccines are rolled out as planned we see yield providing AUD support despite the RBA action. We are adjusting higher our AUD forecast profile to reflect the positive news on vaccines and US politics," says Halpenny.

MUFG have raised their AUD/USD exchange rate forecasts to 0.71 by year-end, 0.72 by the end of March 2021 and 0.73 by the end of September.

Utilising their forecasts for GBP/USD, we can arrive at a cross rate forecast for the Pound-to-Australian Dollar in the above timeframes of: 1.9422, 1.8514 and 1.8506, respectively,

With regards to Sterling, MUFG assume considerable trade disruption next year, and as such they expect the UK currency to underperform peers.

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

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.