Australian Dollar Falls Back to Historical Levels Against Pound Sterling

The Australian dollar could find some near-term relief against the pound sterling according to new technical projections.

Subsequent to the 1983 AUD float, the 2.0500 – 2.2000 range accounts for 19.8% of daily closes. - Westpac.

Since the UK elections in May, GBP has continuously surpassed AUD, but the AUD has finally showed some strength this month.

In the coming weeks, GBP/AUD is expected to ease to 2.0600 aided by the Reserve Bank of Australia (RBA) near term and short AUD positioning and the Bank of England’s (BoE) maintained posture on current interest rates.

Although the Chinese Yuan devaluations did not help AUD, its effects appear to be nominal to GBP/AUD.

“However, multi-month risks remain to the upside, with sustained 6 year highs on GBP/AUD likely in the fourth quarter of 2015 as commodity supply keeps pressure on prices and Australian growth continues to underwhelm,” says Sean Callow, Senior Currency Strategist at Westpac.

According to Westpac data, AUD is closing in on its long term average rate versus GBP.

Latest Pound / Australian Dollar Exchange Rates

	Live: 2.0151▼ -0.05% 12 Month Best: 2.1645
*Your Bank's Retail Rate	1.9466 - 1.9546
**Independent Specialist	1.9869 - 1.9949 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Subsequent to the 1983 AUD float, the 2.0500 – 2.2000 range accounts for 19.8% of daily closes. On the other hand, the BoE’s low interest rates and two RBA cuts in 2015 has diminished the yield pickup on AUD/GBP to new lows for this decade.

RBA’s August statement was much of the same; 2.0% cash rate, spare capacity in the economy remains and inflation is under control.

Callow states, “Westpac expects rates to be kept on hold through 2015 and indeed 2016. But risks of a surprise are tilted towards 1.75%. Markets are pricing a 50% chance of another rate cut by Dec 2015, rising to 72% by May 2016.”

The British pound meanwhile reached new heights in August, since the first quarter in 2008.

Westpac suggests a solid Conservative election victory and widespread optimism, spurred on by good UK growth figures, are the bases for this rally.

However, Callow speculates continued balanced growth remains difficult with a current account deficit –6.2%/GDP in the first quarter of 2015, its widest recorded gap since the 1950s.

Westpac data does not show a negative impact on GBP by phases of BoE QE. Maturing gilts are being reinvested to keep the asset purchases at GBP375bn.

The Australian bank reports a steep recovery of Australia’s data pulse to 60% in early August, up from 35% in June.

“This adds to the lack of tension over the RBA policy decision near term, with markets pricing very low risk of a rate cut in September,” Sean Callow says.

Conversely a neutral UK data pulse is noted, 46 % in early August down from 50% in July. Westpac anticipates 2.5% GDP growth in 2015, with another 2.5% in 2016.

Market Positioning

On speculative net AUD positions on IMM/CME, Sean Callow states:

“Spec positioning has been volatile in recent months, though leveraged funds have remained net short AUD since Sep 2014 and recently increased their bearish bets. Indeed the combined position of leveraged funds and asset managers late July was the most short since Aug 2013, with only modest trimming by asset managers early August. Longer term bullishness on USD, Australia’s sub-trend growth and concern over China’s commodity demand should keep speculative funds leaning towards AUD/USD shorts. This does of course provide fuel for shortcovering rallies at times.”

On speculative net GBP positions on IMM/CME, Callow concludes, “Leveraged funds swung from a very bullish sterling stance mid-2014 to short positions around the Scottish referendum. But these funds were back to about flat even before the UK election result which produced a steep rise in the pound.

"They now hold a substantial but not extreme long GBP/USD stance.  Lingering optimism over the US economy should remain an ongoing weight on cable, most notably in the positioning of asset managers. The Fed should hike well before the BoE does. Spec positioning looks somewhat positive for AUD versus GBP, with good news priced into the pound.”