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- GBP/AUD rate surges, remains above major trendline.
- Bullish chart outlook tips pair to continue creeping higher.
- GBP to be moved by Brexit as AUD eyes employment data.
The Pound-to-Australian-Dollar rate is set to begin trading around 1.8163 this week after closing the previous one around 1.27% higher on Friday, and studies of the charts are pointing to further gains in the days ahead.
The 4 hour chart, used to determine the short-term outlook over the coming week, shows the pair finding support at the major trendline in recent trading sessions before rising sharply. The pair has now formed more than two sets of higher highs and higher lows - a sign it is in a new uptrend.
A break above the 1.8169 highs would probably lead to a continuation up to a target of 1.8330, which coincides with the August highs.
Above: Pound-to-Australian-Dollar rate shown at 4-hour intervals.
The daily chart shows how the pair has managed to stay above the major trendline since it made a trough low and found support their at the end of July. Sterling has since risen up and touched resistance at the level of the 200-day moving average (MA) around 1.8156.
So far the market has been unable to break above the 200-day average but eventually it will probably be successful. A move above the August highs would likely lead to a continuation up toward a target of 1.8600.
The daily chart is used to give us an indication of the outlook for the medium-term, defined as the next month ahead.
Above: Pound-to-Australian-Dollar rate shown at daily intervals.
The weekly chart shows the pair probably rising up to the long-term bullish target, which is at the level of the March 2019 highs at around 1.8860.
The weekly chart is used to give us an idea of the longer-term outlook, which includes the next few months.
Above: Pound-to-Australian-Dollar rate shown at weekly intervals.
The Australian Dollar: What to Watch
The main release for the Australian Dollar in the coming week is employment data due out on Friday and Chinese data out on Monday.
Australian is expected to see a rise in the unemployment rate, from 5.2% to 5.3%, when from 5.2% previously when figures for August are released at 02:30 London time Thursday. Overall employment is expected to have increased by 10.0k, down from 41.1k previously.
The data may impact on Reserve Bank of Australia (RBA) policy expectations. If it is better-than-expected then markets may become less pessimistic about the RBA outlook but if the consensus expectation is confirmed then it could all-but seal the deal on another interest rate cut before year-end.
“With the RBA currently on hold after two rate cuts in the summer, a healthy increase in employment in August would suggest the next rate cut by the Reserve Bank of Australia may not come until December at the earliest,” says Raffi Boyadijian, an analyst at XM.com.
The minutes from the RBA's last meeting may also be instructive on the outlook when released at 02.30 on Tuesday, while Chinese data could impact the Aussie because of the close relationship between the two countries.
Industrial production is forecast to rise of 5.2% for August when figures are released at 03.00 Monday. This would be higher than the previous 4.8% and could be taken as positive for the Australian Dollar, while a lower than expected reading should be taken as negative.
Global risk aversion has eased after China and the U.S. agreed to delay some of the new tariffs recently aimed at each other's goods. This has helped support the Australian Dollar and may continue to do so in the week ahead, especially if the Federal Reserve (Fed) is more upbeat about the outlook on Wednesday.
The Pound: What to Watch
Brexit will probably continue to be the main driver of the Pound in the coming week despite high profile events like the Bank of England (BOE) interest rate decision on Thursday, inflation data on Wednesday and retail sales Thursday.
The UK government’s progress towards agreeing a Brexit deal with the EU before the October 31 deadline is likely to take centre stage, with the main focus on finding a solution which maintains a frictionless border with Ireland after Brexit so as to maintain the integrity of the Good Friday agreement.
It is said the government is considering a variety of different options in this regard, including placing a border down the Irish sea with Northern and Southern Ireland having greater regulatory alignment. This would especially be the case in the ‘agri-food’ and electricity sectors where the whole island is already heavily integrated as one.
Rumours of a breakthrough helped the Pound storm to new highs last week and there is a risk the same might happen in the week ahead. Recent surprisingly strong data has eased concerns the UK might be entering a recession but economic figures are likely to play only a minor role in the Pound’s trajectory. The BOE meeting on Thursday is also unlikely to cause volatility since the bank will probably not alter its policy until after the Brexit process.
“We are not going to get that (a change in policy) from the BOE,” says Raffi Boyadijian, a strategist at XM.com. “They have so far stood by their slight tightening bias; and given the expected extension to the Brexit deadline, which we are likely to get out to the end of January next year - unless we get a Brexit deal - and the easing risks of a UK recession, after recent UK data has surprised to the upside, there is no risk of an imminent recession in the UK."
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