Pound-to-Australian Dollar Forecast: Pointing to 2.0
Warren TakundaSummary:
The pound to Australian dollar exchange rate (GBP/AUD) retains a heavy feel and looks set fair to record a fourth consecutive daily loss.
GBP/AUD rose to a high of 2.0474 last week, but Tuesday's spike proved to be a blowout top for the November rally, and we're now witnessing the ensuing drawdown.
That top coincided with a failed break of the 50-day exponential moving average (EMA), confirming this indicator to be an important element of any technical FX assessment.
The resultant failure means the 50-day EMA is acting as a constraining level of resistance, and while below it, further weakness is preferred.
That preference is reinforced by Friday's drop below the 21-day EMA, which only reinforces our view that the pair is inclined to test 2.0 at some point this December.
Aussie strength follows last week's Australian CPI inflation which surprised markets by coming in materially to the upside on both a headline (3.8% y/y) and core (3.3% y/y) basis.
The RBA kept the cash rate at 3.60% earlier this month, signalling caution over the trajectory of domestic inflation and fears that further rate cuts would inject some heat into price rises.
A stronger AUD reflects a market that is readjusting its expectations for further RBA interest rate cuts, judging them to be less likely.
"Australia’s rate market... is coming round to the idea that rates might be higher by this time next year. That makes AUD look absurdly cheap," says Kit Juckes, FX analyst at Société Générale.
This week's focus is domestic GDP data, where a solid expansion of 0.7% q/q for the third quarter is forecast by the market.
Anything above here and that theme of firming Aussie inflation dynamics will build further and push AUD higher.
"Australian GDP data will determine if the RBA can avoid the awkward situation of choosing between growth and price stability and whether the AUD's winning run can continue," says a weekly FX note from Crédit Agricole.
Image courtesy of Westpac. Chart shows expectations for a solid economic expansion, which would naturally support AUD.
However, the key driver for AUD in the week ahead most likely lies in the U.S., where data will determine global investor sentiment.
"US ISM and core PCE data will also impact the Antipodean currencies in the coming week. The market has moved to aggressively price a Fed December rate cut weighing on the USD, which could easily reverse if the US data turns positive," says Crédit Agricole.
Part of the Australian dollar's recent run of appreciation rests with the solid improvement in investor sentiment, which traditionally assists AUD.
This has occurred against a backdrop of building hopes that the Federal Reserve will lower interest rates again in December, which will hopefully boost U.S. economic activity and global sentiment.
If this week's U.S. data undershoots, the odds of a Fed cut in December, and again in early 2026 will grow, lifting AUD exchange rates.
However, firm data will draw a question mark over the move, potentially scuppering hopes for a year-end market rally.
This would subdue AUD and give GBP/AUD the chance at forming a base ahead of 2.0.
Source: Poundsterlinglive
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