GBPAUD treading water but volatility around the corner

Australian Dollar Research Report

No interest rate cut from RBA in March

GBPAUD treading water but volatility around the corner

Sterling Australian Dollar (GBPAUD) FX Technical Analysis

This morning’s RBA interest rate announcement was a close run event - 61% of the market was expecting another 25bpts cut following on from Feb’s rate cut which would have seen the base rate reach a new record low. In the event the RBA chose to hang on keeping interest rates at 2.25% which gives them time to assess the impact of last month’s easing on the wider economy, Analysts are likely to price in a rate cut in April if Australian economic data continues to show sluggish performance and the RBA stated “further easing of policy may be appropriate over the period ahead”. So whilst the Aussie has made some gains today, thus far it’s reasonably limited.

Key data that’s going to be released over the next month include Australian GDP tomorrow; US employment numbers this Friday (stronger figure will weaken the Aussie), Aussie unemployment next week; the RBA minutes of this morning’s meeting on Tues 17th and then the US Fed’s policy statement the following day. The RBA will monitoring the domestic data and it’s likely that the Aussie dollar will weaken in the run up to the 7th April when their next interest rate meeting takes place.

Technically GBPAUD forged new 5 years highs in Feb, breaching 2.00 albeit by less than a quarter of a cent and for only a matter of minutes. Key support still resides around 1.92 which is the level it breached in Jan. On the longer term chart the next major Fibonacci level (from the move down from 2.7032 in 2.008 down to 1.4383 in 2013) is the 50% retracement which comes in at 2.0707 and whilst we’re remaining above 1.92 I think that’s going to be the target over the medium term. In the short term however GBPAUD has pulled back from the highs just trading below the 20 day moving average for the first time since late December and with the RSI’s also negative, it’s possible that we’ll remain trading sideways with a slight downward bias for the moment. As with GBPNZD, so with GBPAUD the Bollinger bands have narrowed dramatically and that signals a period of greater volatility is just around the corner, possibly a 3-4% swing in prices.

With the potential for another rate cut from the RBA on the horizon the Aussie dollar will likely remain under selling pressure but there’s always the risk that Aussie data suddenly improves and with much of the market pricing an interest rate cut in, any positive Australian data releases could quickly see GBPAUD come under pressure.

Buyers

Just be a bit weary of how GBPAUD develops this week - if it trades back down towards 1.95 a further fall to 1.92 could be seen, potentially 1.88 which is the bottom of the existing up-channel. I personally don’t think we’ll see it fall away that much but as Paul from Sigma often chimes on our office squawk box...”Be aware!”. Initial support is at 1.9630 where the price is currently sitting and Aussie GBP tomorrow will dictate how prices move in the run up to Friday’s employment number. I’d be inclined to have a stop loss order in below 1.95 with an upside target of 1.98-1.9850 in the short term. Certainly no harm in keeping some funds aside for a 3-4% swing to the upside as 2.04-2.05 would be the target if it does materialise.

Sellers

The potential for another interest rate cut from the RBA will continue to weigh on the Aussie baring any positive data surprises so it may be sensible to sell funds on any moves down to 1.95 and 1.92. Stop loss above 2.00 definitely worth having in place if you want to wait it out so see if GBPAUD can trade back down to the bottom of the channel.