Australian Dollar Research Report

Sterling Australian Dollar (GBPAUD) FX Technical Analysis

Having spent much of the last 4/5 months trapped within a trading range between 1.774 and 1.833 or so, GBP/AUD remains within that range at present. 

A period of consolidation relative lack of volatility in recent months is not that unexpected given the move we have seen over the last 12 months. With both the RBA and Bank of England sitting on their hands for the time being GBP/AUD has had little momentum. The Reserve Bank of Australia wants to see the Aussie weaken, but it does not look like that will happen in the coming months. Economic fundamentals in Australia are largely unchanged in the past few months, with modest economic growth, inflation in check and unemployment back to 6% as it was at the turn of the year. 

In their latest policy statement, the RBA said the economic outlook remains uncertain as a more rapid decline in mining investment going forward together with fiscal consolidation and the high exchange rate are expected to restrain growth. 

In terms of the UK, we have had a bit of a mixed bag over the course of the month. The Bank of England voted 7-2 in favour of leaving interest rates on hold for the time being. This was significant as it was the first time in over 3 years that the vote was anything other than 9-0 with 2 members voting for a rate hike. This sent the rumour mill into overdrive with speculation that interest rates would go up this side of Christmas, however with UK consumer price inflation falling to 1.6% (well below the BOE’s target rate of 2%) and retail sales continuing to disappoint I would suggest the market is getting a touch ahead of itself and we’re yet to see any real impact on sterling.

Technically, GBPAUD declined from 1.9181 in January to 1.7739 on the 10th of April. We have subsequently been range bound between 1.7739 and the mid 1.83’s. We’re currently testing support at 1.7739 which need to hold. A confirmed break of this level (3 daily closes or a weekly close) below this level would confirm the level has broken and opens the door for further declines. As a rule of thumb, the market is expected to travel the height of the trading range in the direction of the break when a break out occurs. This would give a target rate of 1.715 or so (6 cents from 1.7739). The market will find interim support at 1.7618, 1.7478 and 1.7249.

Momentum is pointing lower at the present, supporting a move to the downside. 

For AUD Buyers

After several months of range trading around 1.80, it is not surprising that people have become a touch complacent. However, it is starting to look as though this is will remain the top of the market at least until the end of 2014. If you have time on your side, I would consider placing a limit order in this region with a stop loss below 1.7739. Realistically, a stop loss at 1.75 seems sensible as this gives the market some wiggle room and a confirmed break of 1.7739 is likely to see us head significantly lower (as outlined above).

For AUD Sellers

We’re finally seeing a bit of relief after an anxious 12 months. We’re still significantly above the 30 year lows that we had been enjoying for much of the last 4 years or so but things are improving. I would consider trading a portion around current levels and they’re the lowest levels we have seen since November, with a view to trading the balance of your funds in the mid to low 1.70’s. A break above, the recent highs of 1.837 would negate this strategy and should also be acted upon.