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Short-term forecast: GBP/AUD appears to be forming a base following May's selloff, with the balance of probabilities now favouring further recovery.
There's a distinct firming in the technical setup that underpins near-term direction for the pound to Australian dollar exchange rate (GBP/AUD), a development that hints the overarching 2026 selloff is fading.
GBP/AUD techs have improved noticeably over the past two weeks and are no longer as clearly bearish as was the case through April and early May.
Most importantly, the pair has stabilised above the May low near 1.8550 and has since carved out a sequence of higher lows.
The pair has held above the 21-day moving average in recent days, with the indicator flattening out and starting to turn higher.
This suggests short-term momentum has shifted in sterling’s favour.
Recent pullbacks have also become shallower, indicating sellers are losing control.
The next level to watch is the 100-day moving average near 1.9080. Although still some distance away, GBP/AUD is now gradually building a base beneath it rather than accelerating lower.
That suggests the market may be transitioning from a downtrend into a consolidation phase with scope for gains toward 1.89–1.90 in the days ahead.
Although technical studies have turned more constructive, Pound Sterling Live has this week reported on the robust fundamental conditions that continue to favour AUD strength, which leaves us wary of a resumption of the selloff at some point in the coming weeks.
Australia's economy continues to grow with inflationary risks tilted higher, leading to warnings that the central bank might have to raise interest rates again.
With three hikes in the bag and another being considered, Australia's G10-leading yield should underpin the Aussie.
"This still enhances the yield theme and with overall commodity prices supportive it is still a constructive backdrop for the FX rate. AUD/USD trend remains bullish too," says Lloyds Bank in a recent currency market overview.
Above: After a roaring performance in 2026 so far, can AUD carry the momentum of H1 into H2?
The Australian dollar advances against all G10 peers on Tuesday following comments from a prominent policymaker warning that further rate hikes might be needed to ensure the Reserve Bank of Australia maintains a grip on inflation.
The RBA's Ian Harper said Tuesday "strong action" would be required if Aussie inflation expectations became de-anchored.
Also proving supportive is the blistering U.S. stock market rally that's built on AI investment. If the rally can continue, AUD weakness should prove shallow.
However, we think the biggest risk to AUD would be that rally suffering a setback, which is increasingly likely when we consider the incredible debt issuance that's underpinning the investment cycle.
Indeed, today we report that the AI-boom is increasingly resembling elements of the dot-com bubble. It's something to watch out for if you're bullish AUD.
