Pound-to-Australian Dollar Weeh Ahead Forecast: Well Supported

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The pound is supported against the Aussie, but a stock market rally will limit upside.

The pound to Australian dollar exchange rate (GBP/AUD) trades at 2.0234 at the time of writing Monday as it continues to recover from the floor at 2.0.

It has gained consistently since December 09, and last week the pair rose above the 21-day exponential moving average (EMA), currently located at 2.0512.

The 21-day now turns to support, meaning while above here we would anticipate the steady drift higher to extend.

However, we're not too optimistic on this happening as the next challenge is the 55-day EMA, which is close by at 2.0261: last week it blocked advances on three occasions, and already on Monday we have seen the level frustrate gains.

GBP/AUD must break above this level for the rally to build some real momentum. Until then, we'd view GBP/AUD strength as short-lived.

The problem for those wanting a stronger pound is that the Australian dollar will do quite well if we see a traditional 'Santa rally' in stocks.

Already, it has strengthened through Monday thanks to the gains we are seeing in global markets, confirming that sentiment is very important to the Aussie currency.

"Risk is on as we enter the penultimate trading week of the year," says Kathleen Brooks, research director at XTB. "Asian stocks surged, and the Nikkei jumped by more than 1.8%. US equity futures are pointing higher."

If this rally in stocks can continue into year-end, AUD would be expected to do well, which would frustrate GBP/AUD's attempts to climb much further.

Given this, we wouldn't be surprised to see the exchange rate drift lower again, although we don't expect 2.0 to give way until we're well into Q1.