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Pound-to-Australian Dollar Rate Forecast for the Week Ahead

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GBP/AUD has been rising steadily and is tipped to go even higher in the week ahead, but only if it can break above the key resistance barrier centred around the 1.80 highs.

The Pound is rising against the Australian Dollar having broken above a major trendline drawn from the 2015 highs (see below), and our technical studies suggest it will probably continue higher.

If the exchange rate breaks above the 1.8000 February highs we would expect a likely extension up to an initial target at 1.8100 followed by 1.8500 where the 200-week moving average (MA) is situated.

Large moving averages are levels of dynamic support and resistance where strongly trending prices often stall, pull-back or even reverse trend sometimes.

This is due to the increased buying and selling around them as traders and investors often use them in their decision-making processes.

An alternative interpretation of the chart must however be considered - a double top reversal pattern may be forming at the highs which implies an end to the recent period of appreciation.

Double-tops look like the letter 'M' and are signs of a reversal in the trend from up to down.

A break below the 'neckline' of the double top at the January lows of 1.7099 would be required for confirmation of a reversal and more downside.

Given the overall trend is up, however, and the double top has not finished forming we are on balance bullish the pair.

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Data and Events to Watch for the Australian Dollar

The first major data release for the Aussie Dollar is on Wednesday, February 28 when Private sector credit for January is out at 00.30 GMT and is forecast to show a rise of 0.4% compared to the previous month when it rose by 0.3%. 

The AIG Manufacturing Index for January is out at 22.30 on Wednesday, its last previous print was 58.7 in December.

Private Capital Expenditure is out at 00.30 GMT on Thursday, March 1, and is forecast to show a rise of 1.1% in Q4 compared to Q3 when it rose 1.0%.

Friday sees the release of New Home Sales in December which are expected to show a rise of 0.7% month-on-month in December when they are released at 00.00 GMT.


Data and Events to Watch for the Pound

From a fundamental perspective, the most important factor for the Pound in the coming week is the outcome of the extended cabinet meeting held at the Prime Minister's residence at Chequers to heal divisions and decide on a consensus approach to Brexit.

The outcome of the meeting will be crystalised in a speech due to be delivered by Prime Minister Theresa May on Friday, the location and exact time of the speech are yet to be made clear.

The British Pound was seen as one of the better performing global currencies towards the end of the previous week with markets cheering the UK government making progress on their Brexit strategy.

The promise of Conservative party unity on the issue of Brexit is a rare commodity, but this could well be on offer following Theresa May's decision to lock her top team in a room in the English country side and let them out only once agreement had been sought.

Members of Cabinet emerged from the meeting with those on either side of the Brexit divide saying talks were constructive and a unified position had been found.

"GBP is top of the pack by a small margin, as reports suggest the cabinet is closer to agreeing on a unified line on the UK’s post-Brexit relationship with the EU after the Chequers meeting ended late last night," says Adam Cole, Chief Currency Strategist with RBC Capital Markets.

Brexit remains the key story for Sterling and therefore the details of May's speech, and any European response could, therefore, be key.

The issue of UK interest rates will be in focus with the Bank of England's (BOE) Sir John Cunliffe delivering a speech on Monday at 18.00 GMT, in which he may drop hints as to the BoE's stance on monetary policy.

There is now a heightened expectation that the BoE will raise interest rates by 0.25% in May after statements made in the February meeting statement and more recently in front of the Treasury Select Committee indicated BoE members had adopted a more 'hawkish' stance - 'hawkish' meaning members are in favour of raising interest rates at a quickened pace.

If Cunliffe's speech further reinforces a more aggressively hawkish tightening strategy from the bank and a greater chance of a May hike, the Pound will rise, since higher interest rates are supportive of Sterling, because they attract greater inflows of foreign capital drawn by the promise of higher returns.

It is not expected to, however - Cunliffe dissented from raising rates in November and may well still be on the dovish spectrum.

Clearly, if he has become more hawkish it will be a strong indication of voting intentions and push the Pound higher.

"BoE’s Jon Cunliffe is set to speak on Monday following fellow Deputy Governor Dave Ramsden’s scheduled remarks tomorrow.

Given that both dissented against the November rate hike, it will be interesting to see whether they maintain their reservations in the face of the hawkish testimony delivered to the Treasury Select Committee by the Governor Mark Carney and other MPC members," said Investec analysts George Brown and Victoria Clarke.

House price data from Nationwide is out on Thursday at 7.00 GMT and is expected to rise 2.6% in February compared to a year ago and 0.2% from the previous month. Housing leads the economy they say so it is important, but there are not expected to be any surprises in the Nationwide data, so little probable impact on Sterling.

The major economic release of the week is Thursday's release of Manufacturing PMI for February at 9.30 GMT, which is forecast to show a slowdown to 55.0 from 55.3.

PMIs are surveys of key personnel (Purchasing Managers) in a sector and provide a good leading indicator of growth and activity. A result of over 50 indicates expansion and below 50 - contraction.

Construction PMI is out on Friday at the same time and is forecast to come out at 50.7 in February from 50.2 previously.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.

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