Pound-to-Australian Dollar Rate Forecast for the Week Ahead: Sterling Pointed Lower

- GBP/AUD has broken below a key trendline and is poised to continue lower

- The main event for the Pound in the week ahead is the Bank of England rate meeting 

- For the Australian Dollar, the main event is Consumer Confidence 

australian dollar exchange rate 2

© Filipe Frazao, Adobe Stock

GBP/AUD has started the week trading at 1.8040 on the interbank market which is a slight improvement from the previous week's 1.7934 close, at the time of this article's update on Tuesday the pair is quoted at 1.8078. 

From a technical point-of-view, the exchange rate is looking increasingly bearish having broken below the 50-day moving average (MA) and the major trendline at 1.8180, and we expect the short-term downtrend to extend.

After the break below the trendline the exchange rate has temporarily recovered and risen back up to the underside of the trendline in what is known as a 'throwback move'.

Throwbacks occur when prices break through a level, move lower and then pull-back into the level again temporarily. They present traders with the ideal opportunity to enter into positions after a breakout. Eventually prices resume their trend and continue falling.

We, therefore, expect the exchange rate to resume falling eventually and look for more confirmation from a break below the 1.7933 lows. Such a break would probably lead to a move down to an eventual target at around 1.7700, which is just above the May 2017 highs.

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Data and Events to Watch for the Australian Dollar

The main event for the Aussie Dollar in the week ahead is probably the Federal Budget on Tuesday which is expected to reveal a pop in revenues which can fund more social programmes.

Any announcement of more fiscal spending could be positive for the Australian Dollar as it generally leads to higher inflation, higher interest rates and then usually a stronger currency. 

On the data front the main releases for the Australian Dollar are mostly all sentiment gauges and the first, NAB Business Confidence in April, has already been released on Monday morning, and registered a positive balance of 10, up from a previous result of 8 in March.

On Wednesday at 01.30 GMT the Westpac Consumer Confidence Index for May is released; previously it fell -0.6% to 102.4 in April.

Retail Sales data for March is out at 02.30 on Wednesday and forecast to rise by 0.3% compared to the 0.6% in February.

Other data includes home loans and investment lending out on Friday, May 11.

Data and Events to Watch for the Pound

The main event in the week ahead for the Pound is the Bank of England (BOE) interest rate meeting on Thursday, May 10 at 12.00 GMT.

Whilst previously expectations had been for the BOE to raise interest rates by 0.25% at the meeting, data showing a slowdown in growth and commentary from the governor of the BOE, Mark Carney, which brought into question the necessity of a May hike, have dampened expectations more recently.

Official market expectations now stand at roughly 20% for a hike, and Sterling has decline alongside these fading expectations. A recent survey of economists held by Bloomberg found that none of them now expect a rate hike on Thursday.

Therefore - we would expect a substantial boost was the Bank to defy expectations and raise interest rates. In theory, the Pound could retrace much of the losses witnessed over recent weeks.

The BOE's inflation report is also out at the same time, and will show the Bank's latest forecasts for the economy and can provide insight into how the Bank may formulate policy in the future.

If it expects inflation and growth to rise, for example, that could be bullish for Sterling as it will imply more rate hikes, and higher interest rates are usually positive for a currency.

We would expect guidance to be important for Sterling - what does Carney's assessment of the recent growth slowdown, is it temporary or does he believe it to be more entrenched? Will the BOE confirm further interest rate rises are indeed necessary over coming weeks? These are where we see the big story for Sterling lying.

A more upbeat assessment of the economy and the outlook could certainly turn sentiment towards Sterling for the better, while a downbeat tone could allow the recent sell-off to extend.

"We expect clear evidence of a sustained rebound in GDP growth to pave the way for next rate hike to in November 2018, followed by two more hikes in 2019," says a preview note from Berenberg.

"Our baseline case is that next week will mark a three-month postponement to rate increases, with the next 25bp hike occurring in August," says Phillip Shaw, an economist from Investec.

Data releases are second-tier in nature. On Tuesday, May 08 at 8.30 large mortgage lender Halifax releases its house price index, which is forecast to show a decline of -0.3% month-on-month in April.

Wednesday sees the release of the British Retail Consortium's (BRC) Sales Monitor, which is forecast to show a -0.7% fall in April compared to April in 2017.

Thursday, May 10 sees the release of the Royal Institute of Chartered Surveyors (RICS) House Price balance just after midnight, which is expected to show a -1.0% fall in April.

Also out on Thursday is Industrial and Manufacturing Production at 9.30 with the former expected to show a 0.1% rise mom, and the latter a -0.2% decline.

Finally, the UK trade balance is out on Thursday and is forecast to show the trade deficit widening to -11.40bn in March.

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