GBP/AUD Forecast to Recover Off 2.08 Support
The pound could be witnessing a turn in fortunes against the Australian dollar, but note that there is the potential to fall further yet over coming days.
Analysts at Westpac in Sydney note that the pound could fall towards the 2.08 exchange rate against the Australian dollar, but this is likely to represent a bottom to recent declines.
Indeed, we could already be witnessing the start of the recovery with the conversion moving sharply higher on the final trading day of the week. At the time of writing the pound to Australian dollar exchange rate is seen trading higher at 2.1221 having hit a low of 2.0790 earlier in the week. This looks like a base to us.
This forecast comes as the pound continues to slide against the Aussie; the GBP/AUD has fallen from a September best at 2.1872 to an October low of 2.0854. At the time of writing the exchange rate is noted at 2.1043.
Keep in mind that the GBP to AUD conversion is in a longer-term uptrend with sterling benefiting as the UK economy improves while the Australian dollar has lost ground as a slowdown in China is felt across major commodity exporting nations.
Recent Australian dollar strength is thus a corrective bounce within a longer-term period of deterioration.
The question for us is whether the October low represents a turning point for the sterling / Aussie dollar pair’s recent blip.
According to currency strategist Sean Callow at Westpac the sterling uptrend is set to resume.
“GBP/AUD decline much beyond 2.08 is likely to be hard to sustain. Ongoing increases in supply of key commodities should keep a lid on Australia’s export prices, as should the absence of a sharp reversal in China’s growth momentum,” says Callow.
Any potential gains made by sterling will however likely be limited as the AUD is not expected to suffer too much pressure from domestic data or the related pricing for the RBA cash rate.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.014▼ -0.11%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9455 - 1.9536 |
**Independent Specialist | 1.9858 - 1.9939 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
“There is scope for more to be priced in terms of BoE tightening but probably not near term. This should leave GBP/AUD around 2.17 multiweek,” says Callow.
Furthermore, it is worth noting that the exchange rate is presently trading around its longer-term average, something that could keep it sticky around current figures.
Westpac note that the 2.05-2.20 range accounts for a hefty 20.2% of daily closes since the 1983 AUD float.
Looking ahead, the all-important movement in the differential between Australian and British interest rates should move in favour of sterling.
Westpac expect Australian rates to be kept on hold through 2015 and indeed 2016.
The RBA is likely to prefer a softer AUD TWI to yet another rate cut.
“But given decelerating global growth and upward pressure on Australian lending rates, risks to this view are tilted towards 1.75%. Markets see a 50% chance of a move by Dec 2015, rising to 100% by Apr 2016,” say Westpac.
The Bank of England is meanwhile forecast to raise interest rates in early 2016, ensuring the GBP continues to benefit from increasing UK yield expectations.
