Australian Dollar Forecast to Remain Negative Against Pound Sterling Despite RBA-Inspired Bounce

The uptrend in GBP/AUD could be at risk of over-heating in the near-term, but the longer-term move higher still has legs.

Indeed, our predictions for a move lower in sterling/ Aussie appears to be playing out following the recent rally in the Australian currency. The move higher comes as the Reserve Bank of Australia chooses to drop its mention of the AUD being overvalued in their latest statement.

Ahead of the RBA event those transferring money to Australia were doing so at the best exchange rate since 2009 as a protracted trend higher in GBP/AUD continues.

Will even better rates be made available or must the good times end? (Of course those looking to move money out of Australia will be hoping this is indeed the case).

At the present time our analysis confirms there is little reason to doubt that the next move in the pound to Australian dollar exchange rate (GBPAUD) will be higher.

Momentum studies confirm the pound sterling retains the initiative with a steady uptrend being in place since November 2015.

From a technical perspective the trend should not be doubted; laws of probability states that the next move will most likely reflect previous moves:

We do however take caution on the observation that the steeper uptrend line in the above graph comes above a more gentle uptrend line which dictated play until May.

At some stage we believe the two will have to find middle ground - the falls in GBP/AUD could be notable.

Those with currency transfer payments to be made should look to lock current rates in while keeping the option open for even higher rates. Find out more about this here.

Reserve Bank of Australia Provides Aussie With a Boost

The move higher in the Aussie dollar complex is precisely what the RBA is trying to avoid.

By dropping any mention of the need for a weaker AUD in their statement the central bank has allowed markets to push the unit higher.

Markets were expecting no change to the rate which was kept at 2%.

"The RBA dropped the reference to the Australian dollar needing to fall further in the Statement following the monthly Board meeting. Everything else is identical to last month’s statement. The cash rate remains at 2%, global financial conditions are accommodative, Australia’s economy is operating with spare capacity, and inflation will remain within the target zone over the next few years," note ANZ Research in the wake of the event.

ANZ have maintained a bearish stance on the Australian dollar despite today's events noting that impending rate rises in the United States and Britain will likely do the necessary heavy lifting required to ensure a weaker Australian currency.

House Supports the Case For No Rate Change

August CoreLogic RP Data house price data confirmed the recent outperformance of house prices in the two biggest states, but especially Sydney, where dwelling prices were up 18.4% y/y in July.

This means the median Sydney house price has now pushed passed the AUD1m mark for the first time.

With this data in mind the RBA will not risk fuelling further house price rises by cutting interest rates in the near-future.

This is an AUD-positive observation.

"The RBA meets on Tuesday and we (and the market) expect the RBA to keep rates on hold at 2%. The post-meeting statement is likely to provide little new information and the more important event is likely to be Friday’s Statement on Monetary Policy (SoMP). RBA Governor Glenn Stevens recently hinted that the RBA may be internally revising down its estimate of ‘potential growth’ in the economy," says Katie Hill at ANZ Research.

Concerning the pound sterling v Aussie dollar, ANZ say they see GBP holding the advantage:

"The AUD has stabilised over the past few sessions against both the USD and the NZD (where it has shown more definitive strength), but it has continued to weaken against the GBP. We expect this sort of divergent performance to persist."

Currency traders will also be keeping an eye on China where a slowdown remains of concern to those holding commodity dollars.

Asia stocks declined across the board as Chinese economic data showed more weakness.

China Caixin manufacturing PMI final (different from the official read which fell to a five-month low at 50.0) contracted to a 2-year low at 47.8 in July compared with flash estimates of 48.2 and down from 49.4 in June. The Shanghai composite fell -2.33% and Shenzhen declined 2.30%.