Pound-to-Australian Dollar Rate Forecast for the Week Ahead: Itching to Break Higher

- GBP/AUD continues to put upside pressure on 'glass ceiling' above

- Sentiment data dominates calendar for Aussie in week ahead

- Pound to look to industrial and manufacturing data 

australian dollar 1

© AlexanderZam, Adobe Stock

One Pound buys 1.8373 Australian Dollars at the time of writing, not far off from this year's multi-month high of 1.8506.

Indeed, our technical studies confirm Sterling is itching to break higher with the GBP/AUD exchange rate continuing to bang up against solid resistance from the 200-week moving average as we enter the new trading week.

Although GBP/AUD peaked at 1.8508 in March, it met firm resistance overhead from the 200-week moving average (MA) which is capping further gains.

The moving average remains a big obstacle but we think that GBP/AUD will eventually break higher and continue its uptrend.

Looking at the longer-term picture, GBP remains in an established uptrend against the Australian Dollar, and the uptrend is evidenced by the strong bullish momentum in the lower pane of the chart above where the MACD indicator is reflecting the exchange rate's progress higher.

A break back above the 1.8508 peak would provide confirmation of an extension higher to our next target which is at 1.8750.

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Data and Events to Watch for the Australian Dollar

There is second-tier data on tap for Australia this week, with analysts at Commonwealth Bank of Australia suggesting that global market sentiment will in fact prove to be more decisive for the Aussie Dollar than domestic releases. 

CBA see the Aussie trading "on the defensive" this week because of US/China trade-related uncertainties. "The threat that more inward looking US trade policies leads to retaliatory protectionism trade measures from the rest of the word (especially China) is a risk to our constructive global growth outlook. If trade tension worsens it will undermine economic confidence and be a drag on global growth," says Elias Haddad at CBA.

Sentiment indicators dominate the economic calendar for the Australian Dollar in the week ahead, starting with NAB Business Confidence in March, on Tuesday, April 10 at 02.30 GMT, which is forecast to rise to 12 from 9 previously.

Then, there is the Westpac Consumer Confidence Index for April at 01.30 on Wednesday.

Also on Wednesday Reserve Bank of Australia (RBA) Governor Lowe will give a speech at 04.45.

Lowe's previous speech at last week's RBA policy meeting was viewed as neutral overall as can be seen from the review below by Westpac analyst Bill Evans, which provides some context for next week's commentary: 

"Whereas some previous statements from the Governor could have been interpreted as mildly optimistic, there is nothing in today’s statement to fit that description. There is some uncertainty around the immediate growth outlook while tightening financial conditions are noted. A slowdown in improving labour market conditions is observed while the outlook for consumption remains uncertain."

On Friday the RBA releases its semi‑annual Financial Stability Review (FSR). The FSR provides an update on the current condition of the financial system and potential risks to financial stability. Elevated household debt levels and low business credit demand could be topics of discussion.


Data and Events to Watch for the Pound

The consensus now appears that recent poor business survey data was as a result of the weather - the 'Beast from the East' - rather than a real economic slowdown. 

This means the Pound is probably on course for more gains as the Bank of England (BOE) are still likely to raise interest rates in May as most expect.

Higher interest rates are the fuel which drives currency trends as international capital-flows now dictate currency values, and they tend to move to places where interest rates are higher, all other things being equal, as that's where they will earn the most return.

Yet notwithstanding the weather, some doubt has now crept into whether the BOE will still pull the trigger in May.

In the coming week, there will be a heavy focus on wage inflation since if that rises the BOE is more likely to want to cool the economy with higher interest rates. In this respect, the IHS Markit REC recruitment industry survey, out at 23.00 GMT on Tuesday, April 9, may be instructive, as it includes the latest pay information from head hunters, according to Chirs Williamson, Chief Economist at Markit IHS.

"With the Bank of England having laid the ground for a May rate hike, the focus will, therefore, fall heavily on pay trends. In that respect, the REC recruitment industry survey will give an update on new starter and temp/contract staff pay rates, both of which tend to move in advance of pay growth in the wider economy," he says.

Another major release in the week ahead is Industrial and Manufacturing Production data for March at 9.30 on Tuesday, and the Trade Balance at the same time, which is forecast to narrow to -11.9bn in February from -12.3bn in the previous month - a narrower trade balance is sometimes positive for currencies, although the correlation of late seems to be waning.

Another major release is the Halifax house price index at 8.30 on Monday morning, with analysts carefully watching the result given the sector's lacklustre figures of late, and the especially poor Construction PMI result for March, which collapsed into contraction territory.

House prices ought not to be affected by the bad weather as much as construction 'activity' so this may be an important release for restoring some confidence in the sector.

If Halifax house prices show a deeper than expected fall, however, it may hit Sterling as it will almost certainly reduce the probability of the BOE hiking rates in May.

Current forecasts are for only a 0.1% rise in March versus the 0.4% increase in February, or 2.1% compared to a year ago vs 1.8% in February.

Finally, a heads up for Retails Sales in March comes in the form of the CBI Retail Sales monitor, out at 12.01 on Tuesday.

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.