Australian Dollar a Sell, Pound a Buy say Analysts

A number of major institutional strategists have come out to call the Pound to Australian Dollar exchange rate higher in the near-term.

Strategists at Barclays, Westpac and TD Securities have written to clients saying they are forecasting the Pound to extend higher against the Australian Dollar.

“According to our analysis of geopolitical risks, the GBP is among the outperformers while the AUD tends to underperform during periods of surging geopolitical tensions,” says Hamish Pepper at Barclays in a note dated April 16.

Barclays made the recommendation to clients ahead of the new week and the call is looking pretty good having noted the 1.70% jump seen in GBP/AUD following news Theresa May has called a general election for June 8.

However, Westpac made the call following May’s election announcement and have set a target at a notorious resistance level.

“UK May’s calling a House of Commons vote for a snap General Election (June 8th) on the back of extremely positive poll support for the Conservative government will be seen as an opportunity to increase their slim majority and provide a clear Brexit-based mandate,” say Westpac in a note to clients.

Providing political certainty and strength early in the Brexit negotiation period should be seen as positive in advance of the EU-27 Brexit Summit on 29th April.

Meanwhile, “slippage in bulk prices and affirmation of a neutral RBA and its concerns over housing and household balance sheets should see AUD remain under pressure in week light on AU data,” says the note published on April 18.

Furthermore Westpac cite domestic attention in Australia will focus upon the 9th May Budget where Turnbull’s weak Government endeavours to bolster popular support whilst avoiding a ratings downgrade.

“The break out of a tight range and above 200-day mov ave (1.6715) should provide technical support for a push higher,” say Westpac.

The Australian bank are targeting the Pound to Australian Dollar reaching 1.70. This is a noted level of resistance in GBP/AUD where it has failed to extend beyond in the past and therefore makes for a safe target.

A stop-loss should be placed at 1.6625.

“Data risk to the trade lies in Thursday’s UK Retail Sales data as weakness could signal a faltering of the key driver of UK’s solid post-Brexit-vote performance,” warn Westpac.

Barclays are meanwhile offering no clear prices to aim for but believe global risk conditions are supportive of their call.

“As a hedge for potential escalation of geopolitical risks, we reiterate our existing long GBPAUD recommendation. According to our analysis of geopolitical risks in the Overview section, GBP is among the outperformers while AUD tends to underperform during periods of surging geopolitical tensions. We also like the trade from longer-term perspective including GBP’s significant undervaluation and less favorable external factors for AUD,” says Pepper.

TD Securities have meanwhile said their positioning and valuation models point to further downside in AUD and NZD, which could favour more upside in GBP against the antipodeans.

"The break of some key technical levels in GBPAUD suggests momentum trades could start to accelerate the move higher with a break of 1.69 suggesting a test of 1.7250," says analyst James Rossiter at TD Securities in a client noted dated April 18.