Slow Chinese growth a drag on Australian economy

Australian Dollar Research Report

RBA leave rates on hold

Slow Chinese growth a drag on Australian economy

Sterling Australian Dollar (GBPAUD) FX Technical Analysis

Well after the fireworks and excitement of September, October has been a much quieter affair and the rates have settled back into the ranges we have been trading within for much of 2014 i.e. 1.785-1.84 or so.
The Reserve Bank of Australia left interest rates on hold as expected earlier this month, citing concerns about the global growth picture and stating that interest rates would remain on hold for the time being. The RBA hardened their language on China suggesting that leading indicators were softening and that there is scope for the Chinese government to support GDP growth.

The economic indicators from both China and Australia over the course of the month largely supported this view, with Chinese GDP continuing to slow and Australian CPI inflation well within the Bank’s target range.
The pound has come under pressure over the course of the month, largely due to disappointing CPI data (which hit a 5 year low) which has pushed back the likely timing of a rate hike from the Bank of England. With the Bank of England minutes and the data suggesting interest rates will not go up until the middle part of 2015 as opposed to the spring (I bet that is making Osborne happy) the pound has struggled to maintain the gains of last month.

As mentioned above, GBP/AUD has settled back into the ranges that we have been stuck within over much of the year. We’re currently struggling to break back above the 20 day moving average (1.8358 as we speak) a confirmed break of this level should see us retest the recent highs of 1.8584 and 1.8682. In terms of support, the market is underpinned in the 1.8215 region and at 1.8112.
If we can break resistance in the 1.8584 and 1.8682 region, there is only some interim resistance at 1.8823 to stop us from reaching the Jan 2014 high of 1.9181.
Until we see a confirmed break of resistance, we have to assume that this will remain in place. As such, any short term requirements should be traded on a test of the 20 day moving average (1.8358). If you have a bit more time on your side, then targeting rates in the 1.85-186 region would be sensible. If you have little or no time pressures then 1.90 may be achievable as we move towards a UK rate hike.

For AUD Buyers

Depending on time frames, I would place limit orders accordingly. If you’re concerned about protecting your downside, then I would suggest placing a stop loss order beneath the recent low of 1.8112 and possibly 1.785 (just to give the market some wiggle room).

For AUD Sellers

The correction looks to have run its course and we appear to be entering another period of consolidation. A break above the 20 day moving average and certainly the recent highs of 1.8582 and 1.8682 would be a concern. As long as these levels hold, you can use the trading range to your advantage. I would consider moving a portion of your funds around the recent low i.e. 1.8112 with the balance to be traded should we achieve a rate below 1.80.