Sterling in Strong Comeback vs Australian Dollar, GBPAUD Over a Percent Higher

Concerns that an unwinding of GBP/AUD long positions amongst the global FX trading community would keep the rate under pressure has proven to be unfounded.

The pound sterling to Australian dollar exchange rate (GBPAUD) is 1.13 pct higher than seen at last night's closing level at 1.8307.

This represents a strong comeback for the British pound after the steep falls witnessed through the course of Monday's trading session.

Fears had grown that the exchange rate would come under further pressure as traders were forced out of the market as their stop loss levels were triggered.

However, today's move higher would ease concerns of a deeper correction in the exchange rate.

(NB: Our AUD quotes are taken from the spot markets; your bank will subtract a discretionary spread when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer and deliver you up to 5% more currency. Please learn more here.)

Australian dollar outlook remains poor

We hear from Citigroup who have today told clients that they are predicting the Aus dollar to come under further pressure in the medium term.

According the data from IMF, global central bank did not add additional AUD reserves in Q3 2013. This differs from the usual pattern, where central banks accumulated AUD reserves for the past few years.

Citi analysts believe that global central banks may seek to accumulate less AUD moving forward given its reduced attractiveness and the fact they already hold far more than in previous years.

"AUD may be undermined in medium term as global central bank may add less AUD reserves and the RBA may continue to talk down the currency. Citi analysts anticipate the AUD/USD to fall further to 0.80 level in medium term," says a note from Citigroup.

Technically, AUD/USD may trade within the tight range of 0.8821-0.9121. A break below may send the pair lower to 0.8579.

British pound bounces

Meanwhile, the British pound bounced against the dollar after yesterday’s selloff, but its gains were limited by cooler than expected U.K. inflation data.

British consumer prices rose by 2.0%(y/y) in December, which was the slowest pace of increase since November 2009, and exactly in-line with the BOE’s 2.0% target.

The drop in price pressures may ease talk of an earlier than expected hike in BOE lending rates and could ultimately limit the pound’s upside going forward.