Australian Dollar Slips Against Pound, RBA Decision Points to Positive Outlook for AUD

GBP/AUD is expected to maintain a positive tone and potentially extend its recovery rally back towards 1.78.

Sterling buys 1.7126 Aussie Dollars on the inter-bank markets at the time of writing, more than the $1.7029 we saw at the start of the week.

The gains come in the wake of the December Reserve Bank of Australia (RBA) meeting which struck a largely neutral tone for the Aussie Dollar.

There were however some hints that the outlook remains favourable for further AUD strength as policy-makers acknowledged that higher commodity prices are being driven by both demand and supply. 

The RBA noted that, "commodity prices have risen over the course of this year, reflecting both stronger demand and cut-backs in supply in some countries. The higher commodity prices have supported a rise in Australia’s terms of trade, although they remain much lower than they have been in recent years. The higher prices are providing a boost to national income".

"This is something that we think is under-priced by the market. Our fitted fair value models suggest that the A$ is cheap at the moment," says Damien McColough at Westpac in Sydney.

Our studies suggest the GBP/AUD exchange rate will probably continue to trend higher, with a break above the 1.7165 highs confirming an extension to 1.7300, just below the R1 monthly pivot.

Monthly pivots are strong levels of support and resistance where traders often open counter-trend traders in expectations of a bounce or pull-back.

The MACD momentum indicator is above zero which indicates the pair is in an uptrend, however, it looks like it may be topping out.

Therefore a pause to the advance would not come as a surprise at this stage.

Momentum remains in favour of Sterling with the MACD indicator almost crossed below the signal line, but after brushing with it, recovered and started going higher again.

This advocates for further gains.

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.

 

Pound Sterling has benefited of late on growing hopes the UK Government will seek a soft-Brexit whereby the UK pays to remain in the single market once it has left the European Union. 

Further soft-Brexit commentary in the week ahead is the most likely source of more sterling gains in the near-term.

In addition, a neutral outlook for monetary policy, in which it is now less certain the Bank of England will cut interest rates again has also boosted the Pound.

The stance comes as UK data continues to outperform expectations, the latest survey data from IHS Markit and the CIPS points to economic growth of 0.5% in the fourth quarter of 2016 - much better than those forecasts for recession made following the EU referendum.

Regarding the Australian Dollar, recent Aussie data and commodity prices disappointed at the end of November setting the tone for a soft December.

A sharp drop of -12% in Building Permits and a pull-back in the commodity rally recently weighed on the outlook for the Aussie.

Expectations for this week's GDP release on Wednesday are subdued as a result with recent partial data suggesting GDP growth will slow substantially in Q3.

"However, this looks to be already factored in and, as such, is likely to have a limited impact on the AUD," say analyst at ANZ Research.

Within the GDP report, however, keep a close eye on the wage measure, as weakness in wage growth remains a key risk  to the Reserve Bank of Australia's (RBA) inflation outlook.

"The RBA meeting is also likely to have little impact on the AUD, with no change in the cash rate and little change to the statement widely expected," say ANZ.

The RBA interest rate and policy decision on Tuesday, December 6 at 03.30 (GMT).

"We believe that global factors, namely the rally in commodity prices and the USD, will remain the most important drivers of the AUD," say ANZ.