Pound to Aus Dollar: Best Exchange Rate of 2014 Falls Further Out of Reach

The outlook for the British pound against the Australian dollar has deteriorated and we may have put the best levels in GBP/AUD of 2014 behind us for a while yet.

The sterlling / Australian dollar has had a tough time in mid-month trading; a continuation of the volatile manner in which the pair has traded over the last couple of months making calling any definitive long-term direction difficult.

Nevertheless, we are starting to see the picture turn in favour of the Australian currency as the Australians and Chinese pen a free trade agreement that should boost both economies by billions in years to come.

In mid-week trade we see the following spot levels for the sake of reference:

• The British pound to Australian dollar exchange rate (GBP/AUD) is at 1.8035.
• The euro to Australian dollar (EUR/AUD) is at 1.4458.
• The Australian dollar to US dollar exchange rate (AUD/USD) is at 0.8661.

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Choppy Trade to Continue

The Australian dollar has enjoyed a fresh bout of strength recently with a key support level located at 1.8 GBP/AUD being broken to the downside.

In the mid-week session, as the quoted figures show us, the pair has breached the level once again suggesting this is the fulcrum around which much of the action will continue to be centered.

Nevertheless, Jim Langlands at ForexTell tells us he has a negative bias set on GBP/AUD moving forward:

"The 100/200 DMA’s clustered at 1.8140 have been fairly supportive recently but Sterling broke lower on Thursday as the cross headed quickly south.

"Above 1.7945 (daily cloud base) and 1.8000, this will now act as resistance although it looks unlikely to be bothered in the near term.

"The downside looks as though it wants to retest the top of the previous descending channel at around 1.7785. below which would see a run back towards 1.7600 and possibly lower.

"Overall I think the choppy conditions will continue, albeit with a continued downside bias, but where Cable has already seen a lot of damage in the last week or so, I still think the Aud has its turn to come and it may be worth looking to buy the cross if we see a dip to below 1.7500."

Boost for Australian Trade, and the AUD

The longer-term picture for the Aus exchange rate complex has been boosted mid-November by the successful negotiation of a free trade agreement between China and Australia for 2015.

Ten-years of negotiations have finally come to fruition.

The agreement will provide Australian economy superior access to the world’s second largest market; tariffs on 95% of Australian products will be removed once the deal is fully implemented within couple of years (two-to four years eyed), including commodity, energy imports but also dairy products, beef, sheep, wine.

"This privileged access will provide the Australian producers with a sizeable competitive advantage in the Chinese market. Moreover, Sydney will be a yuan trading center. The ability to directly exchange AUD verse Yuan, therefore jumping over USD, will be an additional positive side-effect of the free trade agreement," says Ipek Ozkardeskaya at Swissquote Research.

This is good news for Australia, holding more than 1/3 of its trade relations with China.

In addition, says Ozkardeskaya, the deal will simplify Chinese investments in Australia’s agricultural land and agrobusiness; the total investments are estimated up to 1.25 trillion dollar over the next 10 years.