Australian Dollar to Push Sterling Below 2.0 as Economic Fundamentals Improve
The GBP to AUD conversion remains caught in a well established descending channel that advocates for a test below the magic 2.0 marker.
Let’s start with the technical picture - the GBP to AUD pair is descending within a meidium-term downward-sloping channel.
The current channel appears to be extending lower, and I expect this to continue.
There is a possibility that if it breaks below the 2.0211 lows it might continue lower down to the next major support level at 2.0000, which is a psychologically significant round-number, and also the same level as the major multi-year trend-line drawn from the 2013 lows.
"I still like the short GBP/AUD play and selling rallies towards 2.0425 makes good technical sense," says professional foreign exchange trader Sean Lee at Forextell confirming much of the speculative market is thinking in a similar fashion.
Concerning the headline AUD to USD exchange rate, Lee is also constructive on the Aussie's chances:
"Talking my position as always. The AUD/USD has a nice constructive feel to it and I’m emboldened by the fact that the market is so bearish at multi-year lows. From a short-term perspective, I still expect dips to be limited to 60/80 pips.
"The main level I’m watching on the topside is .7150 and a weekly close above there should hasten my initial target at .7385."
The outlook for a stronger Aussie Dollar revealed in the chart dovetails with an improving fundamental picture.
Australian Economy Demands a Stronger AUD
Of course there was the higher-than-expected CPI figures for the 4th quarter – an impressive feat given the commodity sell-off and weak currency.
This also lessens substantially the chance the RBA will lower rates below 2.0% at their policy meeting on the 2nd February too, adding further strength to the dollar’s outlook.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0121▼ -0.2%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9437 - 1.9518 |
**Independent Specialist | 1.984 - 1.992 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
However, its not just inflation which is picking up, ANZ Bank also notes broader-based growth, headlining a recent note:
“ANZ’s Stateometer shows that Australia’s economic growth is broadening.”
Growth is particlaurly picking up on the east coast:
“The east coast states of New South Wales, Victoria, Queensland and Tasmania are all expanding at above-Activity in New South Wales and Victoria is being driven by strength in the housing market,”
Queensland is also a rising star, as the economic transmutation from a mining to a service-based economy starts to pay dividends:
“we expect Queensland’s economic performance to continue to improve as alternate drivers of growth kick in, and the drag from the mining sector fades.”
ANZ correctly predicted the fall in the NAB Business Confidence to 3 in December from 5 previously.
“Businesses have been reporting solid levels of profitability in recent months, which have look to have been reflected in strong employment outcomes.
“However, other business surveys suggest that both the services and construction industries ended 2015 in contraction, which suggests some down-side risk to NAB business conditions in December.”
The next major release for the Aussie is Private Credit Data on Friday, which ANZ believe will increase by 0.5% mom and 6.6% yoy, further:
“Some slowdown in housing credit is likely with demand and prices for housing finishing 2015 on a soft note, while business sector credit should improve from the previous month’s flat result given the recent solid outcomes in business confidence and conditions.”
