RBA interest rate meeting and UK election next week in a key week for GBPAUD

Australian Dollar Research Report

RBA interest rate meeting and UK election next week in a key week for GBPAUD

Sterling Australian Dollar (GBPAUD) FX Technical Analysis

It’s a really pivotal week for GBPAUD coming up - kicking off with the RBA’s interest rate meeting on Tuesday - the chances of an May interest rate cut from the Reserve Bank of Australia are now just 50:50, dropping from 80:20 after stronger Aussie inflation this month and whilst the market is still pricing in 1 perhaps 2 more interest rate cuts before year end, next week’s meeting could see the Aussie gain if they elect to leave rates on hold. It’s quite easy to become impatient with a currency pair’s progress after such a strong rally over the last 2 years and certainly in time the consensus favours a major break up through 2.00 for GBPAUD but in the short term there’s a massive amount of event risk in the form of next week’s UK elections. In 2010 during the last hung parliament the pound lost 5% against other major currencies and whilst I believe that for this coming election some of that downside has already been priced in, it’s not inconceivable for the pound to come under aggressive selling pressure if the voting results in another hung parliament.

Looking at the recent price action on GBPAUD the market traded sideways through the majority of April, between 1.91 and 1.9460 only managing an attempt to break higher yesterday. So far today that break hasn’t resulted in sustained move to the upside - we’ve just had very disappointing UK manufacturing PMI data and the pounds lost over a cent against the Aussie in this morning’s session. It’s looking like GBPAUD may have topped out, may well remain trading with the triangle formation it’s been in for a few month’s now - consequently the downside target is around 1.92 again. This triangle formation won’t hold forever of course, both the highs and lows are getting closer and closer - so a breakout to either the upside or downside is just around the corner. I think we’ll see it next week.

For Aussie buyers, the best outcome would be an interest rate cut from the RBA and a clear victor in the UK election. For Aussie sellers, the RBA leaving rates on hold, the UK election resulting in a hung parliament.

With potential for such severe swings you may want to consider using automated stop loss and limit orders as they can protect you against an adverse move in the price action whilst allowing you to target an upside move if the outcome is favourable. You don’t necessarily have to trade before the event. Using a stop loss order and a limit order in conjunction allows you to ring fence the market - setting your worst case and best case prices.

Buyers

Key support in this upward channel comes in now at 1.9150-1.92 and it’s critical that it holds for a chance of a short term break up through the 1.95 resistance level that it’s thus far failed to close above.
A break higher would initially hit resistance around 1.9650 and then 1.9850 so if you are looking to buy on the break you should place your limit orders below these levels. For the stop loss order, below 1.9150 would be sensible. Speak to your consultant to discuss the levels and agree your best strategy.

Sellers

Looks to sell a portion above 1.92 and more if RBA and UK election results go your way. A break down through the uptrend could be seen, down through 1.9030 targeting 1.8840 initially. On the topside, a stop loss order above 1.95 is worthwhile.