GBP/AUD X-Rate Forecast to Extend Gains
GBP/AUD is in a strong uptrend as Trump’s presidential win changes the outlook for global yields diverting flows away from commodity currencies which were previously much in demand.
The GBP/AUD pair has risen on the back of reduced demand for the Aussie as global bond yields have risen following the election of president Trump.
The exchange rate has recovered from the lows seen towards 1.59 in October to the multi-week highs above 1.68 seen at the start of the new week.
Expectations that Trump will deliver a fiscal stimulus drive have pushed up interest rates yields in the United States and other developed markets with the UK being a notable beneficiary.
This has reduced the flow of foreign exchange in Australia which with a base interest rate of 1.5% was relatively attractive to international investors.
With that difference now narrowing, however, the Aussie is expected to lose some of that flow advantage.
Technical Outlook for GBP/AUD
GBP/AUD’s strong rally following the election of Donald Trump as US president has seen it break above a major trend-line, giving a clear signal that the pair will continue its uptrend higher.
Technical analysts use height of the leg prior to the trendline to predict how far the price will go after the break, by extrapolating it from the point of the break higher.
On GBP/AUD this indicates a probable upside target at about 1.7000, or 1.6800, the 61.8% Fibonacci extension.
The 50-day moving average has now also been cleared, but the monthly pivot at 1.6820 has not and remains a major resistance level impeding growth.
A move above 1.6900, however, would probably confirm an extension higher to an initial target at 1.7000.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.011▼ -0.26%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9426 - 1.9507 |
**Independent Specialist | 1.9828 - 1.9909 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Data for the Australian Dollar This Week
It is a quiet week for the Aussie, with little in the way of market moving data scheduled for release.
On Tuesday, we see commentary from Deputy Reserve Bank of Australia (RBA) Governor Kent at 7.45 (GMT) and RBA rate-setter Debelle at 7.00, however, given existing low expectations of an interest rate cut they are unlikely to say anything which will change that or move rates.
Other data is mid-tier and includes Private New Capital Expenditure in Q3 (qoq) at 00.30 on Thursday, November 23 and Construction Work Done on Wednesday the 22nd at 00.30.
Autumn Statement is Key Fundamental Risk this Week
The main event will be the Chancellor’s Autumn Statement on Wednesday, November 23.
Markets will be focused on the amount of fiscal stimulus the government is willing to spend, which if substantially is likely to support the pound as it will take the pressure off the Bank of England to print money and use that as stimulus instead.
Talk of stimulus may have been hyped as an admission of ‘outright loosening’ now seems unlikely, according to Capital Economics’ Paul Hollingsworth.
“All eyes are now on the Chancellor, who delivers his first fiscal set piece with the Autumn Statement on Wednesday.
“He will be constrained somewhat by recent poor borrowing numbers and a disappointing set of economic forecasts.
“Accordingly, we expect fiscal policy to be less tight than the current plans, rather than providing an outright loosening.”
Hammond has said the Government remains constrained by the country's huge debt pile and with economic growth remaining robust he will most likely opt for a conservative budget.
Expectations for a Trump-style fiscal boost are therefore likely to be misplaced.
In all, this should be a business-as-usual budget from a Pound Sterling perspective.
The government’s latest borrowing figures out in Tuesday, November 22 – the day before the budget - could provide a hint as to how generous Chancellor Hammond is willing to be.
Economists estimate a rise of 5.6bn borrowing in Net Borrowing by the government in October, from a previous 10.1bn.
A rise much above that will probably weigh on sterling as it will reduce the Chancellor’s stomach to open up the Treasury’s coffers.
Other data includes Q3 GDP on Friday. November 25 at 9.30 (GMT).
Preliminary estimates had it at a healthy 0.5% QoQ and unless the second estimate seriously disappoints we are unlikely to see much movement from this release.
Tuesday, November 22 sees the release of survey data from the Consortium of British Industry November.
