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GBP/AUD spot rate at time of publication: 1.7456Bank transfer rate (indicative guide): 1.6847-1.6969FX specialist providers (indicative guide): 1.7196-1.7336More information on FX specialist rates hereThe Pound-to-Australian Dollar exchange rate could soon fall to a three-year low amidst an ongoing outperformance by the Aussie Dollar, although a recent setback for the currency serves as a reminder the path higher will be a bumpy one.

The Australian Dollar fell over the course of the past 24 hours in a noisy currency market that helped the U.S. Dollar stabilise, even as stock and some commodity prices climbed.

The Australian Dollar's 'high beta' status means it would typically track stock markets and commodity prices higher.

But losses were further aided after investors responded to a surprise fall in Australia's trade surplus for the month of November, although the decline resulted from strong growth in imports which further confirms that a domestic economic recovery is well underway.

Above: Australian Dollar performance on Thursday (left) and for the week (right). Source: Pound Sterling Live.

Many analysts still expect the Australian Dollar to rally enough in 2021 for it to outperform other major currencies amidst improved sentiment concerning the global economy in 2021.

Optimism about that outlook has swelled since voters in Georgia traded in two incumbent Republican Party senators for Democratic Party replacements, shifting the balance of power in Congress decisively in the process on Tuesday.

Democrats will now control the White House as well as both chambers of Congress for at least the nearly-two years between January 20 and the next midterm elections, clearing a more accessible pathway for the U.S. government to loosen its purse strings further.

A less constrained and more spendthrift government is positive for the U.S. and global economic outlooks but with faster growth likely occurring overseas, while aspects of the Democratic Party policy platform threaten corporate profitability, the U.S. Dollar and stock markets are expected to be relative underperformers.

The Australian Dollar could meanwhile be expected to move higher alongside equities and commodity prices.

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GBP/AUD Forecasts Q2 2023 Period: Q2 2023 Onwards Details: Consensus institutional forecast targets + max & min targets. Contributors: Citi, Barclays, Morgan Stanley & more Provider: Global Reach Type: Free Download Please Access Here

{wbamp-hide end}{wbamp-show start}{wbamp-show end}"We think FX markets will move to renew downside momentum in the USD. We do not expect this to come immediately however, as we think there will be some airtime given for the market to contemplate a more ambitious Biden agenda that could include some changes to taxes or potentially more progressive policies," says Mazen Issa, a strategist at TD Securities.

"We look for AUD to benefit the most within G10 complex. Barring a major drawdown in risk, AUDUSD is poised to make a return to 80c. We also like GBPAUD shorts from here as Brexit premia has largely unwound from sterling vol markets; 1.70 is a reasonable target from our vantage point," he adds.

The Pound was the worst performing major currency for 2021 on Thursday and would trade at its lowest against the Aussie since October 2017 if GBP/AUD falls to the 1.70 level targeted by TD Securities, which reflects anticipated Australian strength rather than expectations of outright weakness for Sterling.

Australia's large commodity sector has seen its economy and currency both benefit from rising demand and prices for raw materials like iron ore, a key component of steel and the country's most important export product, which had already helped make the Aussie January's second best performing major currency by Thursday.

Above: Pound-to-Australian Dollar rate shown at weekly intervals.

A more effective containment of the coronavirus and healthier national debt position have also been widely cited as important, albeit lesser factors.

But the RBA already threatened in November to intervene directly if the currency continued to appreciate and market conditions warranted it, while analysts at Commerzbank warned that at least another verbal intervention could be growing more likely for the February 02 statement.

"The aussie has been appreciating significantly on a trade weighted basis as well and there is a real risk that this might bring the Reserve Bank of Australia (RBA) onto the scene soon. It has been keeping a close eye on the aussie for some time as it fears that excessive appreciation might dampen the economic recovery and inflation," says Esther Reichelt, an analyst at Commerzbank. "The RBA is therefore most likely going to comment on the aussie unless the exchange rate corrects significantly until then. As a result, the appreciation potential in AUD-USD is limited in our view."