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Pound-to-Australian Dollar Week Ahead Forecast: Uptrend Continues

Aussie Dollar

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- GBP/AUD tipped to rise as pair continues bullish phase

- Technical uptrend trumps other considerations

- Pound to be moved by Brexit news; Aussie by Lowe speech

The GBP/AUD exchange rate is trading at around 1.8420 at the start of the new week after rising 1.42% in the week before. The pair is in an established uptrend which is likely to continue.

The 4 hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair rising in an established uptrend.

AUD four hour

Given the old saying that ‘the trend is your friend’ this uptrend is expected to continue.

A break above the September 20 highs at 1.8497 would probably lead to a continuation up to a target at 1.8700 next.

The daily chart shows how the pair has started a new uptrending phase ever since touching down on support at the end of July.

Daily GBPAUD

This trend is likely to continue, with a break above the recent highs taking the pair all the way up to a target at 1.8875 and the May highs.

The daily chart is used to give us an indication of the outlook for the medium-term, defined as the next week to a month ahead.

The weekly chart shows the pair probably rising up in a long-term bullish channel.

Weekly GBPAUD

It is likely to continue and potentially hit the next target at the upper border of the rising channel at 1.9075.

The weekly chart is used to give us an idea of the longer-term outlook, which includes the next few months.

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The Australian Dollar: What to Watch

The main event for the Australian Dollar in the week ahead is the speech by Reserve Bank of Australia (RBA) governor Lowe on Tuesday at 10.55 BST when he is scheduled to talk about the economic outlook.

Lowe’s words may be especially important for the Aussie because of the impending RBA meeting on October 1 when analysts - such as Bill Evans from Westpac Bank - expect the central bank to cut interest rates by 0.25% again, in order to stimulate the economy.

The main reason to expect a further rate cut is because the labour market continues to decline. Recent data for August, for example, showed how unemployment rose to 5.3% from 5.2% previously. On previous occasions, Lowe has said he would like to see unemployment ideally fall to 4.5%.

“From my perspective, most importantly, the key rate cut theme that “the Australian economy could sustain lower rates of unemployment and underemployment” returning to the narrative, our central view that there is no reason to wait until November for the next move still seems reasonable,” says Evans.

Lower interest rates would be negative for the Aussie as they would attract lower capital inflows from foreign investors seeking yield.

Global risk appetite themes might also impact on the Australian Dollar especially if they relate to China.

Currently, the Aussie is being supported as China-U.S. trade tensions ease following the resumption of trade talks, and the fact that it is the UN Summit this week suggests that narrative will probably not change this week, providing a supportive backdrop for the currency.

 

The Pound: Johnson to Make Fresh Brexit Bid in New York

Pound sterling

The main focus for markets will be ongoing progress towards a Brexit deal between the UK and EU after what appeared to be some breakthroughs last week, and an improvement in the negotiation ‘mood music’ around Brexit.

On Thursday, European Commission president Jean Claude Juncker said, “we can do a deal” in an interview with Sky News, encapsulating the mood of optimism.

His comments on the Northern Ireland backstop are however perhaps the most notable in that he suggests he is open to dropping the clause that has proven to be the most problematic element of the existing Brexit Withdrawal Agreement for the UK side.

Juncker said a 'no deal' Brexit would have "catastrophic consequences" and said he was doing "everything to get a deal".

He said did not have "an erotic relation" Northern Ireland backstop, adding he was prepared to remove from a withdrawal agreement, so long as "alternative arrangements [are put in place] allowing us and Britain to achieve the main objectives of the backstop. All of them".

Prime Minister Boris Johnson aims to spell out further details surrounding the UK's proposals at the UN General Assembly, to be held in New York from Tuesday September 24.

Johnson will reportedly speak to Donald Tusk, the President of the European Council, as well as French, German and other EU leaders on the sidelines of the UN General Assembly in New York.

Analysts at Moneycorp, a currency broker based in London, say a potential resolution to the Irish border question could go a long way to calming investors’ fears over a 'no deal' Brexit:

"The Pound is continuing its recovery against the Euro, following reports that Prime Minister Boris Johnson will reveal an alternative solution to the Irish border issue at the UN next week. GBP/EUR reached a three-month high in reaction of ongoing progress."

Another key event will be the decision of the Supreme Court over whether it was lawful for Johnson to prorogue Parliament. This is likely to come at the start of the week according to the presiding judge Lady Hale.

The impact on the Pound is likely to be volatile but probably short-lived: if the decision is that Parliament was unlawfully shut-down and MP’s are able to return it will make it easier for them to stymie a ‘no-deal’ Brexit, which could give Sterling some further support.

The Pound's rally since mid-August has largely been built on a reassessment by the market that a 'no deal' Brexit had become increasingly unlikely owning to the decision by Parliament to effectively outlaw such an outcome.

If the decision goes the other way, the Pound may weaken as it will give the government the upper hand, as well as setting a legal president.

However, it is arguable that Parliament has already achieved its objectives in tying the Prime Minister's hands on the issue of 'no deal' therefore we would expect the impact to ultimately be limited.

Meetings also appeared to go well between the UK’s brexit minister Stephen Barclay and EU chief negotiator Michel Barnier.

Barclay said they had had "serious detailed discussions" and things were "moving forward with momentum", whilst Barnier commented that “it had been a "cordial" meeting, but "lots of work has to be done in the next few days", according to reports from the BBC.

Others were more sceptical: the prime minister Boris Johnson said that whilst there had been “progress” it was important not to “over-exaggerate”.

Irish foreign minister Simon Coveney said there was a "wide gap" between the UK and the EU, with Brussels "still waiting for serious proposals" from London.

Leaked comments from Brussels concerning the UK’s proposals suggested a gulf remained between the two, after a memo from the European Commission confirmed British proposals for replacing the Irish backstop "do not amount to legally operational solutions and would have to be developed during the transitional period".

Clearly, if there is more progress on a deal it will be beneficial to the Pound.

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