Australian Dollar Forecast: GBP-AUD Above 2.0 and AUD-USD at 0.73
- Written by: Gary Howes
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The British pound (GBP) is looking to enter April with upward momentum against the Australian dollar.
As we head into April 2015 we hear that some of the usual suspects continue to weigh on the Aussie’s outlook.
The longer-term picture is also favouring sterling; forecasters tell us that ultimately more strength could be in store for GBP-AUD through the remainder of 2015 with Aus dollar losses predicted against both the USD and GBP.
The current strength in GBP ensures our forecasts for a recovery at these levels were almost spot on - a period of weakness would ultimately give away to a resumption of the rally north.
If we look at the GBP-AUD chart it is possible to note the technical uptrend remains alive:
Of course the holding of the support zone at 1.90 will be key to ensuring this neat uptrend, in place since September 2014, remains in valid.
Currency markets have a way of thwarting the best laid plans of forecasters though, so trade in early April will be absolutely key.
NB. Currency quotes mentioned here refer to the wholesale market. Your bank will affix a discretionary spread when transferring money internationally. However, an independent provider will seek to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Please learn more.
Iron Ore Prices to Keep Aus Dollar Pressured
As we head into April 2015 we hear that some of the usual suspects continue to weigh on the Aussie’s outlook.
Recent domestic data have been broadly in line with expectations which confirms external drivers will be central to future direction.
Key amongst these is the iron ore price which is heavily weighted in Australia's export basket.
Global commodity prices have declined further over the past month - particularly, iron ore prices, reflecting continued signs of weak demand from China.
Jeremy Stretch at CIBC Bank says he remains biased towards anticipating cheaper AUD and NZD as a result.
With regards to the Australian dollar Stretch says, “the downside bias in the iron ore price should continue to drag on underlying economic assumptions.”
The declines in iron ore prices coincide with markets factoring in a potential AUD-negative rate cut on April 7.
“We would expect that the RBA may be rather more patient, waiting until May, although the chances of more than just another 25bp on the downside continue to grow,” says Stretch.
If he is correct with his May call, and the markets are indeed pricing the currency around an April cut, then expect a bout of strength.
Lloyds Bank Research, in their latest currency forecast note to clients, agree that the prospect of softer Chinese data will input further AUD-negativity into trader thinking.
“Chinese data have been quite soft. A continued slowdown in Chinese growth risks putting further downward pressure on Australian mining investment. If so, this would strengthen the case for the RBA to cut interest rates,” say Lloyds.
Then comes the US dollar side of the USD equation.
With the FOMC expected to tighten US monetary policy in September, and the RBA pressing for a lower exchange rate to help re-balance the economy, there is scope for further downside in AUD/USD.
Forecasted Changes for Australian to US dollars
“We look for a move towards 0.72 by Q3,” say Lloyds of the AUD/USD pairing.
NAB, in their latest analysis say the pressure on AUD/USD from Fed policy tightening are lessened, “we maintain our 0.74 end-2015 and 0.73 early 2016 forecasts.” For NAB's full assessment, please see here.
Jeremy Stretch, at CIBC takes a look at the nearer term saying, “we would look for a break of 0.7760/65 to open the way for 0.7695/05.”
Pound Forecast to Head Above 2.0 v Australian Dollar
What about the British pound’s prospects against the Aussie?
As mentioned earlier, the technical picture is advocating for GBP-AUD to meet support at 1.90 which would allow for upside gains back above 2.0.
Currency predictions from Lloyds are pricing in an exchange rate of 1.92 in June, 2.06 in September and 2.11 to be attained by the close of 2015.
Be aware that general elections loom in the UK; something that would prompt a fresh bout of GBP volatility that could expose traders to a significant deal of risk.
Taking an ultra-safe approach to the markets we would advocate that GBP is avoided until the shape of the next government becomes clear.
