Australian Dollar Could Fall v GBP and USD but Drift Sideways vs EUR

Aus dollar forecasts, based on technical studies, suggest further weakness against the pound sterling and US dollar could be in store.

However, sideways momentum appears entrenched against the euro which is itself suffering from poor sentiment at the present time.

Fundamentals Driving AUD Weakness

A number of leading analysts predict the RBA to follow up its February rate cut with another 25bps cut in March, or May at the latest.

The prospect of falling interest rates will continue to be the key drag on the currency's valuations as former yield advantages are whittled away. This in turn decreases the attractiveness of Australia as a destination for global capital flows.

While the country’s credit rating does not appear under immediate threat, it will remain in focus. Any signs of a ratings cut will further weigh on capital inflows.

Aussie consumer confidence remains dreary and this week’s capital expenditure data (capex) will highlight tepid non-mining business investment.

Where is the A$ now? Rates to Reference

The pound to Australian dollar (GBP-AUD) is seen at 1.9708 on the interbank wholesale currency markets.

We see an aggregate rate of 1.8935 being offered by the typical bank. Leading independent FX providers are seen quoting a rate in the region of 1.9570.

The euro to Aus dollar rate is at 1.4510 on the markets, 1.3941 at the banks and 1.4408 with independents.

The Aus to US dollar is at 0.7797 on the interbank markets, 0.7491 with your bank and close to 0.7742 with independent providers.

GBP to AUD Forecast

The pound to Aus dollar exchange rate remains caught in the upward channel, in place since September 2014.

We could be due a period of declines in the short-term if recent history is anything to go by. However, any weakness will certainly be picked up on as a signal to further buying opportunity.

As the below image shows, 2.0 is the first target while by July 2015 we are forecasting 2.045.

Momentum is positive at the current juncture with the GBP-AUD trading above its 20, 50 and 100 day moving averages.

Look for a decline below the 20 day MA for signs that the uptrend is failing.

EUR to AUD Forecast

The euro’s outlook against the Australian currency remains a murky proposition to call.

As the below image shows, ‘sideways’ is the most obvious descriptor the charts are offering:

According to analyst Shaun Osborne at TD Securities, EURAUD has stabilized with the cross essentially range bound between 1.44/1.49 since the start of February.

“The broader picture here looks rather neutral - the rejection of 1.49 looks impressive on the longer-term charts and perhaps tilts the risk towards a little more weakness overall going forward but the early 2015 rebound from 1.3980 was also a very strong, longer-term technical positive,” says Osborne.

Neutral momentum readings on the medium-to-longer term charts support the impression of a broad range developing here in the next few weeks.

AUD to USD Forecast

When considering the Aussie against the US dollar, there really is only one story in town – USD strength.

The movements in the AUD are almost of little consequence to the world’s largest currency which continues to bulldoze its way through currency markets.

According to Osborne, AUDUSD is trying to pull out of the nose dive that started late last year but while the trend lower has moderated on the short-term charts, the strength of the underlying trend momentum remains very powerful.

Accordingly, the AUD still has its work cut out to improve:

Commenting on the technical outlook, TD Securities tell us:

“The benchmark technical hurdles for a bounce are fairly clear. After two tests of the 0.7630 area (rejected by daily doji candles), gains through the intervening high (double bottom trigger) at 0.7872 should drive to push up to the low 0.81 area (measured move target is 0.8115).

“Above 0.7872 stands strong daily trend resistance just below 0.80 on the daily chart (just above 0.80 on the weekly chart, below).

“After the sharp tumble in the AUD over the past few months, we think a stabilization in the trend is very likely but the case for a major rebound is not proven. Gains above 0.7875 should be modestly AUD-positive in the near-term at least.”