- Chinese strength aids AUD

- Commodity prices move higher

- But rising covid-19 cases in China poses risks

- Aussie jobs report dominates this week's calendar

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GBP/AUD spot at publication: 1.7647Bank transfer rates (indicative guide): 1.7029-1.7153FX specialist transfer rates (indicative guide): 1.7228-1.7523More info on specialist providers here. Pound Sterling was battling to extend a short-term recovery against the Australian Dollar on Monday as investors cheered strong economic data out of China and advances in commodity prices.

The Pound-to-Australian Dollar exchange rate (GBP/AUD) was seen higher at 1.7660, with Sterling bulls looking to add to the previous week's momentum.

The exchange rate advance 0.83% last week, registering a low at 1.7447 and a high at 1.7693 in a move that came amidst broad-based buying of Sterling.

However, the Australian Dollar remains subject to supportive fundamental forces and further upside in GBP/AUD might be hard to come by as a result.

Indeed, there is a risk that the recent rebound in the exchange rate is a mere counter-trend bounce within a more entrenched trend that could mean recent gains by Sterling are ultimately given back.

Above: GBP/AUD can find some further near-term rebound potential, but the longer-term trend favours the Aussie (below).

The Australian Dollar was the second-best performing of the world's major currencies in 2020 owing to the country's strong exposure to the Chinese economy. Australia's sizeable commodity export sector relies heavily on Chinese demand, and signs that the world's number two economy is expanding rapidly once more will likely provide support.

It was reported Monday that Chinese GDP growth accelerated to 6.5% year-on-year in the fourth quarter as the rebound accelerated from 4.9% in the third quarter, meaning the economy is now growing faster than it was prior to the crisis.

Looking at the figures in detail, Chinese industrial production growth accelerated to 7.3% year-on-year in December, confirming this to be the engine of the country's economic outperformance.

A substantial investment in new infrastructure projects in response to the covid-induced slump of early 2020 will be aiding the rebound, which in turn means solid demand for raw materials, of which Australia has in abundance.

"Q4 data underlines a fast but uneven growth recovery in China, driven mainly by strong exports of pandemic-related goods and credit-fuelled auto and housing sales. In contrast, retail sales, catering, accommodation and air transportation activity remains weak, reflecting the impact of COVID-19 on income and behaviour," says Wei Li, Senior Economist, China, at Standard Chartered.

The relationship is clear: the strengthening in the Chinese economy comes as the Australian Dollar maintains a multi-month trend of appreciation against the U.S. Dollar, Euro and Pound.

The strong performance of China is meanwhile feeding into the ongoing uptrend in commodity prices, which is keeping AUD supported near-term: Liquid Natural Gas prices have soared to a fresh historic high at $29, meaning they have quadrupled since November 2020.

Copper is up a further 1% today and all base metals have risen with iron ore - Australia's main export - reaching a four week high.

From a technical perspective, there is nothing to be found in the price charts to yet suggest the Australian currency is about to relinquish its dominance and analysts would require more decisive breakdowns in price action to call an end to the trend.

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This might be prompted by a fiscal consolidation by Chinese authorities in 2021 as they try and stabilise the country's finances having funded various stimulus initiatives.

Standard Chartered's Lei warns this could well occur, "we expect credit tightening and fiscal consolidation in 2021, but not policy rate hikes."

Furthermore, the outbreak of new covid-19 cases in China is another potential source of near-term headwinds. The weekend saw China report 109 new cases in Beijing and 3 provinces, despite strict measures.

China showed a very strict policy response to the virus in early 2020, something that ultimately eliminated the spread of covid-19 but hurt the country's economy.

A more serious outbreak could well invite a similar reaction from authorities, which in turn could pose headwinds to the economy and the China-linked Australian Dollar.

Beijing reported two new cases, while Hebei, the province surrounding the capital reported 54 new cases. Jilin and Heilongjiang provinces recorded 30 and seven Covid-19 cases respectively.

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Authorities have enforced strict lockdown measures on a series of regions, placed tens of thousands in isolation and begun building massive centralised quarantine facilities in efforts to stem the spread of the virus.

The number of Covid-19 patients in the country rose to 1,301 with the latest tally.

Looking at Australia's economic release calendar, this week sees the release of jobs data for December.

The figures are out at 00.30 GMT on Thursday, Jan. 21 and the market is looking for employment growth of 50k, while the unemployment rate for December is predicted by markets to be at 6.7%.

Economists at ING Bank expect a slowdown in the employment recovery, with the December increase in hiring at 67k vs 90k last month.

"While we are still less pessimistic than consensus, we think almost half of the increase will be attributable to part-time hiring. This should simply confirm expectations for the RBA’s lower for longer approach, and have a short-lived impact on AUD," says Chris Turner, Head of FX Strategy at ING Bank.