Pound-Australian Dollar Forecast to Maintain a Positive Tone

- Technicals advocate for further gains
- Butupside is slow, likely to be limited
- Brexit deal could spark more concerted gains
- Aussie manufacturing activity hits 35 -month high

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• GBP/AUD spot rate at time of writing: 1.8225
• Bank transfer rate (indicative guide): 1.7586-1.7714
• FX specialist providers (indicative guide): 1.7951-1.8060
• More information on FX specialist rates here

The Pound-to-Australian Dollar exchange rate started the new week with a bid that took it back to levels last achieved on November 10 at 1.8226, courtesy of a supportive technical setup and improved fundamental sentiment towards the UK currency owing to Brexit trade negotiation developments.

Near-term momentum indicators are largely positive and advocating for further gains, with the Relative Strength Index (RSI) is above 50 at 53.39 and is therefore consistent with positive momentum, but it is not yet at levels consistent with a clearly-defined bullish trajectory that readings above 60 would advocate.

A further positive near-term momentum signal comes via the exchange rate trading above its 50-day moving average which is presently located at 1.8116, the 50-day MA does appear to have been providing some decent support through the month of November and therefore suggests any weakness would likely be limited:

Above: GBP/AUD with technical indicators. Book your ideal rate as soon as it is reached, learn more here.

However, the long-term multi-month picture is still relatively sympathetic to limited upside given the exchange rate remains below its 200-day moving average, currently located at 1.8622. A break above here would shift Sterling into a broader and more sustained period of appreciation.

The kind of decisive break above the 200-day moving average required to really shift the market into a more sustained uptrend would however likely dependent on a significant fundamental driver being delivered.

This could come in the form of positive news surrounding a post-Brexit trade deal being agreed between the EU and UK. As reflected in our main piece out at the start of the week, a deal by next Tuesday is a possibility. However, analysts at Goldman Sachs say a decent target to eye is the December 10 meeting of EU leaders at their next scheduled European Council summit.

This suggests that there remains time left within which to overcome the outstanding points of contention, and Sterling would only likely see a more decisive move on a final confirmation.  It was reported last week that one hedge fund was gearing up for a sizeable leap in the value of the Pound in the weeks following a deal being struck, which should in turn be reflected in a more robust GBP/AUD exchange rate.

Of course, disappointment could yet be the final outcome if the gaps over fisheries and state aid remain too large to overcome. Failure to reach a deal would likely lead to a large decline in the Pound, however there is little consensus amongst analysts on just how severe the pullback would be, with some saying the Pound has already largely adjusted for Brexit.

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The trajectory of the Australian Dollar will of course be important to the GBP/AUD in the coming week and months, and signs that a vaccine-driven global economic rebound is looking to favour the pro-risk Aussie Dollar could pose headwinds for GBP/AUD.

Positive news from AstraZeneca/Oxford University on the success of their vaccine candidate has aided investor sentiment at the start of the new week, boosting assets such as stocks, commodities and the 'commodity' dollars which includes the AUD, NZD and CAD.

The high beta these commodity dollars display means they are positively aligned with global stock market performance, more specifically the performance of the S&P 500, therefore a strong performance by equities tends to translate to a stronger performance by the Australian Dollar.

"AUD/USD is firmer near 0.7330 underpinned by the positive economic implications of a vaccine and improving Australian economic activity," says Elias Haddad, Senior Currency Strategist at Commonwealth Bank of Australia. "Australia’s composite PMI improved to 54.7 in November, a four‑month high".

Latest PMI data out of Australia showed the expansion in the Australian private sector economy strengthened midway through the fourth quarter as containment measures were eased further. The Services PMI read at 54.9, a 4-month high while the Manufacturing PMI read at 56.1, a 35-month high.

Business activity growth accelerated in November, led again by the service sector. Inflows of new business rose further, but at a noticeably slower rate when compared to output.

"This reinforces our more optimistic Australian economic outlook compared to the RBA. Nevertheless, the risk policymakers in advanced economies avoid cranking‑up stimulus as the recovery in global economic activity loses steam is a near‑term headwind for AUD/USD and NZD/USD," says Haddad.