Pound Sterling Slumps vs Australian Dollar, But Longer Term GBP/AUD Remains In Upward-Trend

By Gary Howes

The Aus Dollar traded higher through the Wednesday session and starts Thursday on the front foot thanks to good domestic data, despite this the GBP remains in an uptrend vs its Australian counterpart in the longer-term.

The pound sterling to Australian dollar exchange rate (GBP to AUD) has slumped on Thursday following a gutsy performance delievered through the course of Wednesday's trading session. GBP was strong with gains seen right across the marketplace.

The Aus Dollar is higher on Thursday thanks to more good news on the economic front, Retail Sales s.a. (MoM) (Jan) came in at 1.2%, analysts had only expected a reading of 0.5%. Last month read at 0.7%.

Also boosting the AUS$ was news that the Trade Balance (Jan) shot up to record 1,433M, analysts had only expected 270M. This month's reading is double the 591M seen last month and confirms markets may be overly bearish on the currency.

A look at the Aus dollar exchange rate complex shows:

On Wednesday the AUD saw decent buying interest courtesy of news that Australian GDP beat expectations by printing at 0.8% versus 0.7% eyed.

The results were solid with main contribution coming from net exports and consumer expenditure. This reinforces a forecast we posted yesterday that suggests the worst may be over for the Aus currency.

Mining was up 1.2% while rental hiring and real estate sectors added a very strong 4.2% on the period prior.

"Overall the data from Down Under will keep RBA stationary and should keep Aussie supported at these levels. The pair initially spiked to 8999 on the news but found offers at the 9000 level and receded as resistance at that key figure remains strong," says Boris Schlossberg at BK Asset Management.

Are these good levels to buy Aus dollars with pound sterling?

We have today received an interesting forecast on the pound to Australian dollar exchange rate.

Analyst Michael O'Neill at IFXA Ltd says we could be witnessing good levels to buy GBP-AUD.

"GBPAUD has been in a prolonged uptrend since April of last year and is currently near the bottom of a rising channel, intact since October 2013.

"The correction from the 2014 peak of 1.8820 appears to have run its course with the break through the downtrend line at 1.8660 suggesting that another up-leg is pending."

However, it is worth noting that the GBP-AUD is a volatile currency pair and is problematic for those without a strong constitution.

"GBPAUD remains in an uptrend while trading above 1.8560 and a move back above 1.8705 points to another visit to the 1.9180 peak seen in December, although 1.8815 will provide some resistance. The idea is wrong if GBPAUD moves below 1.8540. This is a  GBPAUD has large intraday price swings, which means the trade  could be stopped out relatively easily while still maintaining the upside bias," says O'Neill.

A closer look at the Australian GDP data

Aus GDP grew 0.8% q/q in Q4, slightly above median economist expectations (+0.7% q/q).  

Q3 growth was unchanged, but Q2 was revised slightly higher, and annual growth in Q4 rose to 2.8%.

"The major surprise in today's release was stronger-than-expected consumer spending in Q4. Household consumption rose 0.8% q/q in the quarter, the strongest outcome since Q1 2012.  This solid result, combined with upward revisions to previous quarters saw y/y growth rise to 2.6% as the savings ratio fell from a downwardly revised 10.6% to 9.7%," says Felicity Emmett at ANZ Research.

Looking at today's numbers in the context of more up-to-date information on the economy, growth looks to be below trend, although there are some positive signs emerging reckon ANZ.  

While the windback in mining investment expected over the next couple of years will weigh on growth, there are early signs that other sectors of the economy are starting to pick up: housing investment is set to pick up strongly this year, household consumption is trending higher, and the outlook for non-mining investment looks to be improving.

"For policy, the numbers are slightly stronger than the RBA's 2½% y/y forecast in the February SoMP. However, we expect that the Bank is on hold for some time, given sub-trend growth and rising unemployment this year," says Emmett.