Australian Dollar vs Pound Sterling: Aus Exchange Rates See Profit-Taking, What Does the Outlook Hold?

By Will Peters

The Australian dollar (AUD) is turning softer as we head into the weekend. It has been a positive week for the AUD with analysts now asking whether the recovery can last.

A look at the foreign exchange markets on Friday morning shows an element of profit-taking on this week's rally taking place:

• The pound sterling to Australian dollar exchange rate is 0.3 pct higher than seen at last night's close having reached 1.8277.
• The euro to Australian dollar exchange rate is 0.04 pct higher at 1.5179.
• The Australian dollar to US dollar exchange rate is 0.19 pct lower at 0.8942.

Note: All our AUD quotes refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

Driving the Aus dollar today is the RBA’s latest Statement on Monetary Policy which reiterated the importance of steady rates, revised the core inflation up to 3.0% and the growth forecasts to 2.75% for mid-2014.

The inflation band for end-2014 was shifted a quarter of a point higher to 2.25% - 3.25%.

Outlook for the Australian dollar

Of course, the question now is whether the Aus dollar is due for a strong correction or whether the AUD-negative trend of the past few months will continue to play out.

Kathy Lien at BK Asset Management points out that on short-covering alone the Aus dollar could be due a rally in the region of 3-5% as there are substantial short positions that need to be closed.

However, arguing for further losses is momentum - longer-term indicators suggest that the path of least resistance is lower.

Concerning the latest outlook notes for the Australian dollar we see that analyst Ipek Ozkardeskaya at Swissquote Bank has 0.9 pencilled in for the AUD/USD rate:

"AUD/USD sees resistance below 0.9000, while we believe that it is just a matter of time for the Aussie to sit on 0.9000 versus USD. AUD/NZD consolidates gains above the 50-dma (1.0813), large vanilla options at 1.0850 with today expiry should limit the downside pre-weekend."

Analyst Geoffrey Yu at UBS says, "There’s risk for extension of the recent recovery but from a broader perspective upside will be limited to resistance at 0.9086. Support is at 0.8874 ahead of 0.8730."

Meanwhile, Sean Lee at FXWW says markets should remain rangebound today as we have some significant options due for expiry:

"AUD/USD failed again near .8980 after the RBA policy statement. 2 billion expiry later tonight at .8940 and another 1 billion at .8900 ensured that the sellers didn’t wait too long; we can expect the market to remain range-bound until these options roll off."

RBA increasingly comfortable with AUD levels, economic trajectory

Sentiment towards the Aus dollar improved dramatically this week when the RBA indicated that the possibility of any easing action this year is highly unlikely.

This stance was confirmed today with the bank saying inflation and growth outlooks have both been revised higher in the near and medium term.

Analysts point out that the tone of the Statement is relatively more upbeat than RBA communications in recent months.

The AUD initially spiked a little higher after the report, although it subsequently reversed as the Bank again stressed that lower levels of the currency “if sustained” would assist in achieving balanced growth in the economy.

"For us, the absence of the description of the AUD as “uncomfortably high” in Tuesday’s and today’s communication more reflected the fact that the AUD was approaching the mid USD80 cent level the RBA Governor had previously indicated might be more appropriate rather than any change in view from the Bank that a lower currency would be helpful for rebalancing in the economy," says Ivan Colhoun at ANZ Research.