Outlook for Australian Dollar (AUD) vs Pound Sterling: AUD Forming an 'Important Low'

The Australian dollar (AUD) has opened marginally higher on Monday amidst calm FX markets. 

In spite of sterling weakness early on in the session, worries about the Chinese outlook as well as iron ore prices have kept the pound in favour over the Australian dollar.

With demand for the pound easing. The next challenge for sterling will be to keep levels above 1.85 vs the Australian dollar.

A look at the Australian dollar exchange rate complex shows:

Update: "February has been kind to the AUD in terms of price action so far; there are clear signs that the AUD is reversing its trend losses against the Kiwi and EUR/AUD is looking technically vulnerable as well. A strong close to the month (near or above current levels) would be a plus for AUD/USD as well, suggesting that an important low may be forming." - Shaun Osborne @ TD Securities.

The outlook for the Aus dollar this week

"At the moment the pound looks comfortable and is still trading within recent ranges and we expect this will continue during today’s session," says Sasha Nugent at Caxton FX.

Concerning the outlook for the Australian dollar this week, Q4 private-sector CAPEX data will be important for the short-term direction of the AUD.

Also on the horizon is Q4 'construction work done' figures which will be released on Wednesday while Q4 CAPEX is due on Thursday.

"These numbers are inputs to the national accounts, with Q4 GDP data released on 5 March. In relation to the CAPEX numbers, the market will focus both on the extent of weaker mining investment but more importantly on potential recovery in non-mining investment.

"The key figure to look for is the first reading of non-mining firms’ investment expectations for 2014-15. We think a number greater than AUD53bn would be strong, while below AUD47bn would be considered weak. On Thursday, we expect credit to have increased 0.5% m/m in January," says a note from
ANZ Research.

Looking at broader conditions, Asian markets were week on Monday which weighed on the commodity currency complex.

The Asian stock markets made a mixed start to the week.

The Hang Seng and Shanghai’s Composite lost 0.88% and 1.75% respectively (at the time of writing) on MNI report that China’s Industrial Bank pulled back on lending to property developers.

News weighed on the Aussie-complex already weakened by last week’s decline in iron ore prices.

British pound sent lower on Friday

Last week’s GBP-negative news brought the Cable to close below 1.6668 (former high) vs the US dollar on Friday.

"As trend and momentum indicators lose pace, we expect deeper downside correction in the continuation of lower-lows-lower-highs pattern building since last Monday fresh pick of 1.6823. Option barriers are seen pre-1.6675/1.6700," says a note on the matter from Swissquote Bank.