Pound-Australian Dollar Can Test 1.8922: Commonwealth Bank
- Written by: Sam Coventry
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The Pound to Australian Dollar exchange rate can expect further volatility over the coming days because of some key central bank announcements, according to a note from Commonwealth Bank of Australia (CBA).
According to CBA's Senior Currency Strategist, Kristina Clifton, if the U.S. Federal Reserve is judged to be more dovish today, global equities may receive a boost and GBP/AUD can fall.
"GBP/AUD could test support at 1.8922 (61.8% fibbo)," says Clifton.
Markets head into Wednesday's Federal Open Market Committee (FOMC) announcement expecting the Fed to push back on the 100 basis points of interest rate cuts the market expects in 2024.
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Success here would support U.S. yields and the Dollar, potentially lowering equity markets and hamstringing the high-beta Australian Dollar.
But, as CBA points out, if the Fed proves a more benign affair, markets can rally and the Aussie can pressure the Pound further.
Turning to Thursday's Bank of England decision, CBA expects a balanced communication that repeats the recent message that interest rates will need to stay elevated for some time to bring inflation back to target.
"However there is a small risk that they could strengthen that guidance because financial markets are pricing a rate cutting cycle to begin in June 2024," warns Clifton.
"A sharper warning could cause financial markets to push back the start of the BoE’s cutting cycle a little. This would increase UK-Australian interest rate differentials and support GBP/AUD," she says.
