Pound to Retest Peak Against Australian Dollar in Early January

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The Pound to Australian Dollar (GBP/AUD) exchange rate's rally is intact, but a retracement to support located at 2.0110 could see us into the new year.

GBP/AUD rose to a multi-year high at 2.0300 in the lead-up to the Christmas period, and all indications suggest fresh highs will be printed in the new year.

However, near-term indicators point to a retracement of recent gains, with a test of the nine-day exponential moving average (EMA) at 2.0110 being a possibility in the coming hours and days.

GBP/AUD has traded above the 9-day EMA since November, confirming the indicator to be a reliable touchstone for technical analysts of late.

As the daily chart shows, the indicator is pointing higher and is acting as a support. However, any strong upside deviations from this level tend to fade, which is why a near-term pullback is possible.

However, we need a close below the 9-day EMA before advocating for a deeper retreat.

Technical studies are, ultimately, consistent with further upside momentum and a retest of 2.03 is predicted for the first half of January.

AUD strength on Monday is attributed to "bargain hunting" by Krishna Kumar, a Reuters market analyst.

He says an AUD/USD rally is leading the way for other AUD exchange rates, which can be attributed to "bargain hunting in a thin market."

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"Buyers encouraged after support at 0.6200 holds on a second occasion," he explains.

However, Kumar thinks AUD strength will prove "limited" as interest rate policy differences between the Reserve Bank of Australia and other central banks will prove a headwind for the currency.

In addition, a weak Chinese economy and U.S. President-elect Donald Trump's trade policy agenda will continue to pose headwinds in the coming year.