Sterling / Australian dollar slide towards 1.80 possible
– GBP / AUD support vulnerable in big central bank policy week
– Support at 1.8250 may pull back causing a slide to 1.8000
– If RBA follows in BoC’s footsteps, or if BoE sticks to its guidelines
– The decision of the Wed Fed is also essential and could be favorable to the GBP / AUD
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- GBP / AUD reference rate at publication:
- High bank rates (indicative band): 1.7550-1.7679
- Payment specialists (indicative band): 1.8024-1.8097
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- Or, set up an exchange rate alert, here
The exchange rate of the British pound against the Australian dollar could risk falling further to 1.8000 or just above in the coming week as the market digests the latest news from the Reserve Bank of Australia (RBA), the Federal Reserve (Fed) and the Bank of England (BoE).
The British pound was still on track for its sixth week of decline against the Aussie on Friday, but appeared to stabilize above a series of technical support levels, including its 200-week moving average at 1, 8278 and the 61.8% Fibonacci retracement of the 2021 uptrend.
However, those levels could be tested further next week, with price action potentially pushing the GBP / AUD to five-month lows if the Reserve Bank of Australia launches a pending central bank windfall by following the tracks drawn by the Bank of Canada (BoC) this Wednesday.
âFrenzied rate markets have dramatically increased the prices of the RBA’s rate hikes. But Westpac maintains its view of a stable cash rate through February 2023, and expects the RBA language changes next week to be less dramatic than market prices suggest. This suggests that the AUD / USD pulls back to 0.7450 in the near term, but remains a buy if lower on the multi-month / quarter outlook, âsays Sean Callow, Sydney-based FX strategist at Westpac.
“Our baseline scenario is that the AUD / GBP only goes up around 0.54 to 0.55 [GBP/AUD down to 1.81] in the coming months, but a change in the RBA’s stance is a wildcard, âCallow wrote in a research presentation this week.
Above: Pound sterling rate against the Australian dollar shown at daily intervals with Fibonacci retracements of the 2021 uptrend indicating areas of technical support.
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The RBA is expected to announce its next policy decision at 3:30 a.m. London time on Tuesday and the Bank’s likely word choice is really a wildcard given recent developments in other central banks and after official data showed that the Australian inflation rose at an annualized rate of 3% in the last quarter.
Although central banks still maintain that these inflation levels are temporary, with the RBA among the most confident, some have started to adjust their guidance and pave the way for the possibility of an interest rate hike sooner. than what had been suggested previously.
âWe now think it will be the middle of quarters next year, so if you want it in months, between April and September. This indicates that we would expect to consider raising our key rate. This is our plan. BoC Governor Tiff Macklem said on Wednesday.
The direction of the RBA has been that its cash rate should remain at 0.10% until 2024, as years of too low inflation have taught it that significant improvements in Australian wage growth would be needed to keep wages going. inflation rate within the target range of 2-3% over the medium term.
Above: Market expectations for key central banks’ key rates. Source: Westpac.
Financial markets clearly have a totally different idea and have bet lately that Australia’s cash rate could rise from 0.10% to over 1% by the end of 2022, with expectations rising significantly this week. and pushing Australian government bond yields higher in the process.
âThe April 2024 bond is now yielding nearly 70bp above the RBA target. The RBA’s inaction this week means we can only assume that at Tuesday’s board meeting that goal will be dropped. The difficulty for the RBA is that this will also require a change in its forecast on the expected timing of the first rate hike, âsays Carol Kong, strategist at the Commonwealth Bank of Australia.
If the RBA followed in the footsteps of its Canadian counterpart on Tuesday, it could support the Aussie, possibly by lifting or otherwise supporting the AUD / USD and just when the Pound could be brought under control by uncertainty over the outcome of the Bank of England next Thursday. decision.
The GBP / AUD pair still closely reflects the relative performance of the AUD / USD and the GBP / USD, so the above combination would be a headwind that would leave the Pound in need of a Federal Reserve and a âhawkishâ Bank of England on Wednesday and Thursday in order to stay afloat. .
Above: AUD / USD, displayed at daily intervals, tests the 200-day moving average after breaking above 61.8% of the Fibonacci retracement of the June decline.
A hawkish Federal Reserve cannot be ruled out for the reasons outlined here, and may even be a likely outcome, which would help stop any RBA-induced decline in GBP / AUD next week, as the exchange rate tends to benefit. of the strength of the US dollar. .https: //www.poundsterlinglive.com/usd/16100-pound-to-dollar-week-ahead-forecast-oxygen-thins
But Thursday’s Bank of England move will also be crucial for the British pound following September’s announcement that an interest rate hike would be announced in the near future, which may have played a role in prompting the market to bet on an increase announced in November.
âWe have advanced this quarter when we expect the BoE to start rate normalization (+15bp to 25bp). That said, the current market pricing for key rates by the end of 2022 seems too aggressive (1.25% discount rate). We believe there are strong macroeconomic justifications for the appreciation of the pound to do the heavy lifting, âsaid Brian Martin, senior international economist at ANZ.
However, the policy decision and the BoE debrief in September also suggests that members of the Monetary Policy Committee (MPC) want clear evidence that levels of employment and inactivity in the labor market continue to normalize. in the last quarter before voting to take action.
This data will only be available in December and January, which could mean that next Thursday’s decision disappoints parties in the financial markets that anticipate a rate hike in November, meaning it is also a potential headwind for GBP / AUD next week. .
Above: Market expectations for the BoE discount rate. Source: ANZ.