Australian Dollar Rate Forecast Lower Against Pound Near-Term, AUD Stability in 2017 Mooted by Barclays, Lloyds

Pound Sterling has broken above key resistance level against the Australian Dollar which comes in the form of a major trend-line and we expect another possible leg higher to be made.

The Pound to Australian Dollar exchange rate trades at 1.6750 at the time of writing, confortably above the week's open at 1.6709.

GBP/AUD’s push higher since the election of Donald Trump has seen it break above key resistance from a major trend-line and this has given a clear signal that the pair will probably extend higher.

The usual way to calculate how far an asset will trade after it has broken above or below a trend-line is to take the distance of the leg prior to the break and extrapolate it post the break.

The gains come as per our forecasts made ahead of the new week.

On GBP/AUD the leg prior to the trend-line went from roughly 1.5950 to 1.6450, a move of 500 points.

This indicates a move to about 1.7000 is possible, of 1.6800 at the least, which is the 61.8% Fibonacci extension from the break.

The pair formed three bullish Japanese candlestick patterns in a row after it reversed -  a Bullish Engulfing, a Three Outside Up and a Three White Soldiers pattern – all in quick succession.

When Japanese candlestick patterns occur within a few bars of each other they tend to reinforce each other’s signals, increasing the probability that they will be followed by more upside.

This combined with the trend-line break suggests more upside.

The 50-day moving average has now also been cleared  and the monthly pivot at 1.6820, a break above the 1.6900 would probably lead to an extension higher to a target at 1.7000.

Expectations for a stronger GBP will be welcomed by those with impending GBP into AUD payments as they have seen their buying power steadily decline through 2016.

At present, a 1.6787 GBP/AUD offers a range of retail transfer rates lying between 1.6203 and 1.6640 depending on how competitive the provider is.

Latest Pound / Australian Dollar Exchange Rates

	Live: 2.0099▲ + 0.05% 12 Month Best: 2.1645
*Your Bank's Retail Rate	1.9415 - 1.9496
**Independent Specialist	1.9817 - 1.9898 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Labour Market Data Comes in Below Expectations

The Australian Dollar is weaker on Thursday November 17 following the release of labour market statistics which came in softer than anticipated.

The headine employment figure saw growth of 9.8K, below market forecasts for a reading of 16K.

While this is an improvement on September's -29K it does still represent a miss on expectations.

Employment is now falling in trend terms.

According to analysts at ANZ the data will be met with disappointment by the Reserve Bank of Australia who need more robust labour market data to stimulate inflation towards target.

"The RBA has highlighted the labour market as a key risk to its outlook, and we imagine that the Bank would be disappointed by today’s data. Along with yesterday’s wages report, which showed a further step down in the wage price index, they suggest that the labour market has lost some momentum over recent months," says Felicity Emmett at ANZ Research.

Emmet says that without a tightening in labour market conditions and a flow through into higher wage growth, "the RBA’s forecast for underlying inflation to gradually return to the band next year will remain under pressure."

Markets are betting that the prospect of another rate cut at the RBA has suddenly risen and they have sold AUD as a result.

Barclays, Lloyds Forecast Stable 2017 for AUD

Concerning the longer-term outlook for AUD analysts at Barclays have told clients that in their view the currency will maintain a steady course over 2017.

Make no mistake, there will be strong forces pulling the currency in either direction with global political risks and the steepening of core yield curves providing potential downside.

But, Barclays argue Australia’s education and tourism industries are helping to stave off the effects of the ‘Dutch disease’ as the economy continues to transition from resource dependency.

"Terms of trade have risen, and while this likely has not yet had a significant effect on the AUD, Australian government bonds are potential beneficiaries of reserve diversification as political uncertainty in the US and Europe arises from the politics of rage," say Barclays.

However, sources of depreciation remain.

"Against a backdrop of still-significant overvaluation, missingflation is a growing problem and we expect a resumption of slowing in Chinese growth with downside risks. Amid these offsetting forces, we have flattened the path of AUDUSD depreciation," say Barclays.

Fellow high-street lender, Lloyds Bank, are in agreement that AUD should face a gentle path in 2017.

Analysts say Australia will remain an attractive destination for foreign inflows as investors will still seek out the country's superior yields.

However, there are some concerns regarding the viability of the country's AAA credit rating should the Government's fiscal position deteriorate further.

Developments in the United States will also be important for AUD.

"Despite the uncertainty around the economic impact of Donald Trump’s potential policy agenda, the estimated probability of US monetary policy tightening has actually increased since he was announced as President-elect. Our base case remains for a rise of 25bp in December," say Lloyds in a briefing to commercial clients.

Consequently, conflicting forces are likely to leave AUD/USD confined to a range - Lloyds forecast the pair to reach 0.77 by year-end and 0.78 by end-2017.