Pound / Australian Dollar: Technical Forecast and Events to Watch in the Coming Week

The British Pound appears to have adopted a positive stance against the Australian Dollar which we believe should yield further gains in the near-term but we are wary of a busy event calendar which could inject some volatility into this market. 

The Pound-to-Australian Dollar exchange rate surged higher in the previous week, leaving the door open to further residual advances. 

Sterling jumped higher after the Bank of England (BOE) said it was considering raising interest rates sooner than expected by markets.

The Australian Dollar meanwhile maintained a neutral bias after mixed data and neutral central bank made it something of a silent partner, and this will probably continue in the week ahead bar a surprise in the Reserve Bank of Australia (RBA) September meeting minutes - which is unlikely.

Looking at the chart we can see GBP/AUD was in a strong downtrend until it found support recently at a major trendline ('B') where it reversed and started rising at the end of August.

The young uptrend has gained substantial traction, and broken above the 50 and 200-day moving averages, before rising up to a level in the 1.69s.

The established trend is now up and likely to continue, with a break above the 1.7005 highs leading to a continuation to a target at the level where it touches trendline 'A' at 1.7300.

The MACD momentum indicator has moved above the zero-line and is rising along with the exchange rate, further suggesting the trend is now bullish.

Data and Events to Watch for the Australian Dollar

The main event for the Australian Dollar in the week ahead, as already mentioned is the release of the RBA September meeting minutes, out on Tuesday at 2.30 BST.

Analysts at TD securities say of the release that the risks are of an upside bias to officials' comments in the minutes, which would be supportive of a more hawkish outlook, higher rates, and a stronger Aussie.

Indeed it sounds like the RBA have perhaps been a little pessimistic in their assessment of the economic conditions:

"The Sep statement suggests the Bank sees risks around the consumer with weak wages growth, high household debt and spare capacity as potential barriers to growth. To this Ian Harper, RBA Board Member played down the chances of a rate hike given economic growth was too weak to justify a hike. The Minutes tend to be more nuanced so we will be on the lookout for any change in thinking," say TD Securities.

Other events include RBA governor Lowe speaking on Wednesday, September 20 and the House Price Index on Tuesday at 2.30.

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Data and Events for the Pound

The Bank of England's Mark Carney will be speaking at 16.00 on Monday, September 16, in Washington DC.

With Bank of England policy being the predominant driver of Sterling at present, the comments will be closely followed for any further clarification of policy trajectory.

He is unlikely to deliver a radically different message with regards to UK monetary policy to the message which came out at Thursday's policy meeting.

He will also avoid contradicting his comments made to a press pool hours after the event in which he indicated he is part of that group of policy-makers that believe an interest rate rise in the near-future is necessary.

There is the chance that he might push back against the recent market assumption that rates will be raised in November which would be negative for the Pound, but such a move would be too risky at this stage as it would certainly cloud the picture with regards to monetary policy.

The Bank's message must be clear and unanimous in scope at this juncture, and we doubt Carney would compromise with any message other than interest rates are to rise in the near-future.

Data-wise, retail sales out on Wednesday, September 20 at 09.30 BST, will provide fresh insights on consumption trends. 

It is forecast to rise 1.1% year-on-year in August (from 1.3% previously) and Core is expected to rise 1.3% from 1.5% a year ago.

The recent rise in the number of people in work, "should provide some support to consumer spending, with the jobless rate falling to its lowest since 1975," said IHS Markit's Principle Economist Bernard Aw.

"However, wage growth remains stubbornly low despite the hiring surge, which could continue to weigh on household spending," he added.

A beat on expectation should reinforce the fresh positive stance adopted by markets with regards to Sterling's outlook.

IHS Markit's Household Finance Index, a survey of house holders finances, out in the week ahead, could also be useful in measuring the pressure on consumers.

On the political front, all eyes will be on Prime Minister Theresa May when she delivers a major speech on the UK's Brexit stance in Florence, Italy on Friday 22.

The speech will be keenly watched by markets for signs that the UK will yield further concessions, or even creative ideas, to push Brexit talks forward.

Such an outcome would certainly be positive for Sterling which is remains weighed down by the uncertainty surrounding the Brexit process.

The speech will also provide domestic political intrigue in that the speech will be made nearly a week after Foreign Secretary Boris Johnson wrote a lengthy article for the Telegraph newspaper in which he laid out his vision for Brexit.

Some have interpreted the speech as a direct challenge to May's leadership.

We doubt this to be the case and would suggest it is rather a rallying call to the British public at a time when confidence regarding the Brexit process is low.

Indeed, a leadership challenge opens the door to fresh elections which in turn raises the spectre of a Labour party victory and the opening of a pandora's box of market-negative policies which bode ill for Sterling's long-term valuation.