Pound-to-Australian Dollar Rate Week Ahead Forecast: Rising Channel Points to Further Gains
Image © Greg Brave, Adobe Stock
- GBP/AUD finds floor at major trendline
- Price now rising in gentle channel
- Pound to be moved by Brexit news; Aussie by Chinese data
The GBP/AUD exchange rate is trading at around 1.7934 at the start of the new week after falling -0.65% during the week before, but the pair is still seen to be trading within a rising channel, which is likely to extend.
The 4 hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair having fallen to support near a major trendline. It is likely to make a recovery soon and subject to confirmation rise back up inside its ascending channel.
The pair will probably find support at around 1.7900 and then rise up to an initial target at 1.8110 and the prior highs. At that level it is likely to encounter resistance and retract, and for more confirmation we would ideally like to see a clear break above the 1.8200 level.
Such a break higher would see the pair rise up to the top of the channel at about 1.8400. After that, it could fall back down to 1.8000 again, and so on - oscillating up and down within the channel as it rises.
The daily chart shows how the pair is rising in a small rising channel within a bigger long-term rising channel.
The pair will probably oscillate within the smaller channel and reach a potential upside target at around 1.8600 in time.
The daily chart is used to give us an indication of the outlook for the medium-term, defined as the next week to a month ahead.
The weekly chart shows the pair probably rising up to the long-term bullish target, which is at the level of the 2019 highs at 1.8885.
The weekly chart is used to give us an idea of the longer-term outlook, which includes the next few months.
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The Australian Dollar: What to Watch
In the absence of any major domestic data releases in the week ahead the main driver of the Australian Dollar is more likely to be Chinese data because of the two countries' close trade links.
Chinese trade data has already been released and shown a -1.0% decline in exports and a -5.6% fall in imports in August.
The result is below the 1.0% expected for exports but higher than the -6.0% forecast for imports.
It compares to a 2.0% gain in exports and -5.6% fall in imports in the previous month of July.
It is a volatile series and monthly swings can be quite large.
Nevertheless, analysts think trade data will probably set the tone for financial markets on Monday.
The results are mixed - exports undershot and imports overshot. This could be interpreted as showing trade tensions are affecting exports but domestic demand remains marginally more resilient than expected.
How could this affect the Aussie? Australia exports a lot of commodities to China so the import figure is as important for the Aussie as the export figure, and it is slightly better-than-expected.
This may signal that the Aussie will not weaken as a result of the data or if it does, any weakness will be marginal.
The export part of the Australian economy is currently one of the most successful sectors, suggesting China slow-down is not an issue.
Strong export growth and high commodity prices helped boost recent weak GDP figures.
Chinese inflation data for August could also impact on the Aussie when it is released at 2.30 on Tuesday.
The forecast is for inflation to rise 2.6% compared to a year ago and 0.5% compared to the previous month.
This would be lower than the 2.8% yearly rate in July but higher than the 0.4% monthly figure.
Falling inflation is often considered a positive sign for an economy but not in this particular instance where it would be interpreted as a sign of weak demand (from consumers) and therefore weak growth.
Producer price inflation (PPI) also known as factory gate prices are out the same time and may also be important. They are forecast to show -0.9% decline from -0.3% previously.
A lower-than-expected result might be negative for the Aussie.
On the domestic data front, the main release is the NAB Business Confidence barometer at 2.30 on Tuesday. It showed a result of 4 in the previous month which is lower-than-average.
A lower reading would be taken as negative or bearish for the Aussie, while a higher reading would be taken as positive for the currency.
The Pound: What to Watch
Brexit is expected to continue to overshadow economic data as the main factor driving the Pound in the week ahead.
Boris Johnson will probably seek another vote of approval from Parliament for an early general election but he needs two-thirds of the vote to be successful and it seems highly unlikely he will get it.
If Johnson fails to secure an election before October 31 then we would suggest the chances of a 'no deal' Brexit in 2019 will have been materially reduced, and this development will surely provide support for Sterling.
What is certain, that while Brexit will have been delayed by recent developments, a 2019 General Election is almost a certainty, and it is here where market focus will fall.
Expect markets to try and weigh up the implications of the various outcomes: what would a Conservative majority mean, what would a Labour majority mean? What would the messy 'in-betweens' i.e. coalition and confidence-and-supply governments mean?
The range of potential outcomes are large in this time of Brexit, and therefore we would expect the uncertainty posed by the vote to keep a lid on Sterling and limit its full recovery potential.
On the data front, UK monthly GDP for July, industrial production, and employment data are the highlights.
GDP is expected to show a 0.0% rise in July like it did in June when it is released at 9.30 BST on Monday.
GDP showed a contraction of -0.2% in the second quarter of the year. Data out next week will show the 3-month rolling rate of GDP to July, which is expected to be -0.1%.
If the negative trend continues all through the 3rd quarter, i.e. in August and September, the country will have met the criteria for qualifying for being in a technical recession - two consecutive quarters of negative growth.
Although the Pound may decline if GDP comes out lower-than-expected next week loses may be short-lived if the Brexit news is positive for Sterling, as is widely expected.
“An overall expected downbeat set of data will not be able to stop the pound from bursting higher if Prime Minister Boris Johnson fails again in his bid to call a snap election,” says Raffi Boyadijian, an investment analyst at forex broker XM.com.
Employment data is expected to be broadly positive and show a continued rise in wages of 3.7%, an employment rate of 3.9%, and an increase in jobs of 43k in July, when the data is released at 9.30 on Tuesday.
Industrial and manufacturing production are forecast to show a -0.1% decline in growth in July when figures are released on Monday at 9.30.
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