Buy GBP/AUD on Dips: Pound sterling to Australian Dollar exchange rate forecasted higher as AUD dollar's positive Sentiment is 'Rudely Shattered'

A look at the spot markets shows:

• The Pound Sterling to Australian Dollar exchange rate (GBP/AUD) is 0.25 pct higher at 1.7093.
• The Australian Dollar to Pound Sterling exchange rate (AUD/GBP) is at 0.5850.
• The Australian Dollar to US Dollar exchange rate (AUD/USD) is 0.2 pct lower at 0.9254.

Please be aware that the above quotes are wholesale; your bank will charge a discretionary spread when passing on their retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.

"AUD is weak as labour data deteriorated. In August the economy lost 11k jobs (consensus had been for a gain of 10k), with the unemployment rate rising to
5.8% as the participation rate dropped further. The release was disappointing and matched against a hawkish RBNZ put downward pressure on AUD," says Camilla Sutton at Scotiabank.  

Bullish sentiment towards Aus Dollar shattered

Commenting on the shift in fortune towards the Australian Dollar is Sean Lee at FXWW who says:

"The short-term bullish AUD sentiment was rudely shattered yesterday by some poor unemployment data.

"The market got itself long in anticipation of a good number and there was talk of very large stops above .9350. This all came to nothing after the data and the AUD got smashed across the board, but particularly against the Yen. The buoyant NZD has helped the AUD to steady in overnight trade but it still looks vulnerable on the crosses. There is nothing of note on today’s economic calendar."

Lee forecasts the Australian Dollar will likely cede more ground:

"Resistance on the daily chart at .9350 has been confirmed and this level must be given a large amount of respect. The short-term charts are showing a solid up-trend but we may be seeing a reversal and the first big level to watch is at .9175

"After yesterday’s events I am now in the sell-AUD-rally camp, but primarily on the crosses as I’m still not a big fan of the USD especially pre-FOMC. Sell AUD/JPY near 93.00 or buy GBP/AUD near 1.6950."
Sasha Nugent at Caxton FX says:

"Today there is little to move this rate in either direction, although so far this morning sterling seems to be holding on. We predict more fluctuations around the 1.71 level in today’s session."

Japan dumps the Australian Dollar

Hefty pressure on the Aus Dollar is coming courtesy of Japan. Gareth Berry at UBS says keeping an eye on Japanese investors will be crucial to the future fortunes of AUD:

"Japan’s retreat out of Australian dollar assets continues. This matters because Japanese investors hold enormous quantities of AUD – more than all FX reserve managers combined.

"AUD holdings of Toushin investors fell again in August, dropping 4.3% m/m.

"These investors have been steadily reducing their exposure for over a year now.

"Even aggressive BoJ easing on April 4 has failed to reverse the trend.

"The reason is clear – successive RBA rate cuts have systematically undermined the currency’s yield advantage, and the August cut inflicted further damage.

"The latest IMF survey put reserve manager AUD holdings at $98 bn. If we allow for the fact that some large central banks do not participate in that
survey, global AUD reserves are probably worth closer to $180 bn.

"But Japanese investors in general hold even more AUD than this – up to $191 bn worth according to the BoJ."