Pound-to-Australian Dollar Week Ahead Forecast: Finding Firmer Ground
- Written by: Gary Howes
File image of Governor Bullock. Image still: ABC News.
Pound-Australian Dollar firms ahead of the RBA decision.
The pound to Australian dollar exchange rate is starting the new week and month on firmer footing, with GBP/AUD trading around 1.9687 as markets position for a much-hyped RBA rate hike.
That level is around one per cent above last week’s low near 1.95, marking a modest rebound after a period of sustained selling pressure.
The earlier decline left GBP/AUD oversold on short-term timeframes, with the daily Relative Strength Index falling below the 30 threshold that typically signals stretched downside momentum.
Those oversold conditions have since begun to unwind, allowing the exchange rate to recover part of its recent losses.
The rebound is therefore viewed primarily as a technical correction rather than evidence of a shift in the underlying fundamental balance between the two currencies.
That being said, there is fundamental fare to be had: Tuesday brings with it a highly anticipated Reserve Bank of Australia (RBA) decision, where an interest rate rise is expected.
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"There is a meaningful chance the RBA raises interest rates for the first time in more than two years. December CPI inflation was slightly stronger than expected and markets currently assign around 70% probability to a 25bp increase to 3.85%,” says Hann-Ju Ho, Senior Economist at Lloyds Bank.
Recent AUD strength can be viewed through the lens of the market preparing for that hike and if a "sell the fact" reaction transpires in the wake of the hike, AUD can lose further ground.
For this reason, our Week Ahead Forecast is mildly constructive on GBP/AUD.
Adding to the headwinds for the Australian dollar, global commodity prices have fallen sharply over recent hours, a development that typically weighs on currencies closely linked to resource exports.
If the commodity selloff extends, it would likely reinforce pressure on the Australian dollar and support the view that GBP/AUD can continue to stabilise or edge higher in the near term.
