Pound / Australian Dollar Exchange Rate: Near-Term Losses Forecast but Recovery Potential is Growing

The Australian Dollar is extending gains against Pound Sterling in line with expectations for further near-term weakness. However, looking ahead there are suggestions that the decline is becoming exhausted.

The Pound buys 1.5936 Australian Dollars on the interbank markets at the time of writing - down from the 1.5975 commanded at Monday the 18th's close.

Near-term momentum remains negative and we would expect declines to extend a little further.

However, there are signs that relief is to be had for the beleagured Pound.

GBP/AUD formed an extremely low hammer candlestick on the day of the fat-finger sell-off, and this is normally indicative of exhaustion and can mark the start of a recovery higher:

However, in this case, the recovery has not yet started and the pair has edged lower instead.

It has now broken below the lower trendline of what appears to be a broadening formation or rare widening ending diagonal.

Such a pattern has identified by Elliot Wave theorists as the terminal formation in a trend and so it may also mark exhaustion.

This indicates a recovery is on the cards for the pair as the diagonal continues to unfold.

Nevertheless, we cannot completely discount the possibility of a break below the spike lows of 1.5582, which would probably lead to a continuation down to 1.5500, followed by 1.5400.

Latest Pound / Australian Dollar Exchange Rates

	Live: 2.0112▼ -0.24% 12 Month Best: 2.1645
*Your Bank's Retail Rate	1.9428 - 1.9509
**Independent Specialist	1.9831 - 1.9911 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Pound has Recovery Potential

While it's always safer to bet on established trends continuing, some forecasters warn of the prospect of a weaker Aussie Dollar over coming months. 

There are also those who think the British Pound is now nearing a bottom and the only way is up.

BNP Paribas, for example, argue sterling has now absorbed a ‘Hard Brexit’ ‘worst case scenario’ into its exchange rate, which suggests that the only way is up from here.

It has also been reported that Nordea Bank’s Stable Return fund, Europe’s fastest growing asset manager, is betting the British Pound is going to appreciate from here.

The valuation has been priced out to become more fair. We’ve started to short commodity currencies instead that are looking a bit pricey,” using the pound to bet against the Australian and New Zealand dollars," says Asbjoern Trolle Hansen, head of multi assets at Nordea Asset Management in an interview with Bloomberg.

This represents a shift of strategy from earlier this year, when the $22 billion fund bet against Sterling using the Yen which paid off as the Pound has fallen against the Yen by 28% this year.

Australian Dollar: Data and Events to Watch

The first major release in the week ahead for the Australian Dollar is the Reserve Bank of Australia’s meeting minutes on Tuesday, Oct 18.

The release was upbeat in nature and some commentators have attributed the tone of the minutes to the AUD's rally on Tuesday the 18th October.

Analysts see no sign of another RBA interest rate cut being delivered anytime soon, which is positive for the currency. But keep an eye on inflation as this could sway the outlook. 

"We continue to see rates on hold at 1.5% for an extended period, although with inflation set to stay low for some time, the risks remain tilted to the downside," says Felicity Emmett at ANZ Research.

Then on Wednesday the Australian Treasury will release its mid-year economic and fiscal outlook, which will include updated growth forecasts.

This is followed by Thursday’s Employment Change, which is expected to show a 15k rise in September from the previous month’s -3.9k decline.

Important data for China, Australia’s largest trading partner, comes out in the form of GDP on Wednesday.

If last week’s trade figures are anything to go by then China’s economic figures this week could disappoint expectations and potentially cause the Aussie dollar to slump.

Obviously the Aussie could climb further higher should the outcome of the above macro events turn out to be more favourable than expected.

Data for the Pound

This is actually quite a busy week in terms of data for Sterling.

Whether markets actually take account of the figures is however debateable.

That said, it would be negligent if those watching the FX market were not aware of what is due Tuesday sees the release of September CPI, which showed a 0.6% rise previously on a year-on-year basis.

Employment data dominates on Wednesday, with Unemployment Rate forecast to remain at 4.9%, Average Earnings at 2.3%, and Claimant Count forecast to have risen by 3K.

Thursday sees the release of September Retail Sales which are expected to have grown by 0.3%.