Australian Dollar Forecast to Lose Further Ground Against the Pound as GBP/AUD Breaches 100 Day M.A

The outlook for GBP/AUD remains positive now that the pair has broken above a key support level.

Pound Sterling has enjoyed three successive days of gains against the Australian Dollar which takes GBP/AUD to 1.7036 at the time of writing.

The spot rate has not been this high since late September.

This ensures that retail market transfer rates are in the region of 1.64-1.6850, depending on who your provider is.

The outlook remains positive with momentum building behind GBP/AUD now that the pair is now above the average price it has been for the past 100 days which is at 1.6792.

Analysts use such breaks to look for signs of building momentum.

We note too that the shorter-term 20 day moving average is trading above the 50 day moving average and could soon cross the 100 day moving average - another technical signal that upside momentum is building.

We eye the September highs at ~1.78 as the obvious target that would challenge the extension of the recovery.

Fresh moves higher in GBP come as a senior Government member has confirmed the UK will seek single access to Europe's shared market place.

This is the first time the Government have shown any inclination to wanting unfettered access to the market.

Brexit Secretary David Davis told Parliament that the Government would consider paying for access. We assume the Government sees this as the most valid route to securing single market access while controlling the UK's borders.

Ahead of the news Sterling had been boosted by the continued rise in UK gilt yields which have tracked their US Treasury counterparts higher.

The so-called Trump trade has seen yields rise in anticipation of stronger inflationary pressures thanks to the stronger growth rates Mr. Trump is likely to bring as per his policy pledges.

In fact, at times the UK’s gilt yields have outstripped the rises in US yields confirming Sterling to actually be more of a beneficiary of Trump than the USD itself.

There is also the suspicion that much of the Pound’s recent strength has to do with technical clearing of negative bets from the market, known as short-covering.

Analyst Kit Juckes at Societe Generale in London says he can't help feeling that the resilience of the pound in November is almost entirely down to the weight of short positions at the start of the month, which are now significantly reduced.

“The most likely outcome is that volatility continues to fall and the pound drifts in a range against the dollar, with EUR/GBP reflecting the European political mood, which in turn gives GBP/USD a bearish bias overall,” says Juckes.

How this plays into GBP/AUD remains to be seen but we would expect that an end to short-covering would at least see the uptrend fade and a more consolidative tone set in.

AUD, NZD Hit Take a Hit from Fundamentals

The Australian and New Zealand Dollars have meanwhile struggled over recent days on a combination  weaker data, a rising U.S. Dollar and lower oil prices.  

Gold, iron ore, steel and copper all experienced losses in month-end which undermined the two commodity currencies.

In Australia, building approvals dropped more than -12%, which was significantly worse than the market's forecast for a 2% rise.

In New Zealand business confidence ticked lower.  

However NZD managed to outperform AUD thanks to RBNZ Governor Wheeler's comments overnight.

The central bank head said he expects inflation to rise back into their target band in December.  

At the start of the new month Australian data disappointed with private new capital expenditure sliding 4%, much more than the -2.5% forecast by analysts.

Chinese manufacturing PMI was relatively stable at 51.3 - not enough of a beat on expectations for 51.1 to cause any excitement for the Australian Dollar.