Australian Dollar vs. Pound: Week-Ahead Technical Forecast, News, and Data

Our technical studies suggest Pound Sterling will continue rising against the Aussie Dollar despite one major analyst suggesting weakness into year-end is likely. Much will depend on the outcome of this week's UK budget though.

The Pound-to-Australian Dollar exchange rate is presently quoted at 1.7468 and is seen moving higher in a short-to-medium term uptrend. Our studies suggest that in the absence of any evidence to the contrary, Sterling could continue rising.

The pair has broken above a major trendline drawn from the 2015 highs which is a bullish sign.

It will probably extend to the next level of resistance at the level of the April highs, at 1.7650 - a move confirmed by a break above the 1.7571 highs.

The MACD momentum indicator is rising and is above the zero line which means it is affirming the uptrend, which is more likely to continue as a result.

While our technical studies are supportive of Sterling's prospects, we were able to report last week that the Australian Dollar is tipped by Westpac Bank to end 2017 on a strong note, which puts the GBP/AUD exchange rate at risk of decline of potentially 4%.

Into year-end, "we see prospects for AUD to recapture some lost ground,” says Sean Callow, an analyst with Westpac.

“Expectations of higher UK rates and debate over the pace of tightening should maintain a degree of support for Sterling,” says Callow. “But we view Brexit negotiations as a weight on the Pound multi-month, with a distinct lack of progress to date.”

No major change in these fundamentals should leave AUD/USD around 0.76 by year-end. This would push AUD/GBP back to around 0.5950, GBP/AUD to 1.6800/50,” says Callow.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.

Data and Events for the Australian Dollar

The main event in the week ahead for the Australian Dollar is the release of the Reserve Bank of Australia (RBA) meeting minutes on Tuesday, November 19 at 00.30 GMT.

The minutes contain the discussion between the officials in the bank's interest rate-setting committee and sometimes shed a light on the direction of future monetary policy.

The Australian economy has generally been perceived as fairing quite well recently with a string of positive data releases and a strong labour market, however, the 'fly in the ointment' is perennially low wage data, which means inflation is likely to remain tied down and the RBA will therefore not raise interest rates.

Higher interest rates boost a currency as they attract more inflows of foreign capital in search of better returns, but the poor wage data means this is unlikely to happen yet, keeping the Aussie Dollar tethered.

"Wage growth failed to accelerate in Q3, consumer confidence ticked lower and consumer inflation expectations declined. The Australian dollar responded poorly to all of these reports as investors know that these numbers will keep the Reserve Bank of Australia firmly in their seats," says BK Asset Management Managing Director, Kathy Lien.

As far as hard data goes, the other major release is Construction Work Done, which is forecast to show a fall of -2.3% in Q3 from 9.3% in Q2.

TD Securities note how this is a data range which is susceptible to a wide variation due to large projects skewing the data in some months and not others.

A jump in second-quarter 2017 work done was due to engineering (+32.2%) from an LNG plant (although spread out for GDP calculations).

We will focus on dwelling construction, where we look for a pickup of +1.5%/quarter after a first-half 2017 dip in activity.

Market expectations show a massive range of between –7.5% to +24%, "as lumps drop in and out of analyst estimates," says TD Securities regarding the release, which they think will come out lower than estimated at -6.0%.

Data and Events to Watch for the Pound

The most significant event of the week ahead is the Autumn Budget statement on Wednesday, November 22 which will prove important in terms of the credibility of the UK Government, and the economy's potential growth trajectory.

From a currency perspective, the stability of Theresa May's Government is key; markets like stability and recent months have shown the Government to be anything but.

The budget is often a 'danger time' for the Government as popular support has often proven to be attuned to the success of a budget - recall George Osborne's 'omni-shambles budget' of 2012 where support for the Cameron Government slipped notably on perceived policy blunders presented in that budget.

"It is critical not only for the Government’s self-imposed fiscal goals (2% deficit by 2021, balanced by mid-2020s) but the survival of May’s Govt. due to mounting political pressures domestically and around Brexit," says Tim Riddell at Westpac.

"A successful budget could relieve some pressures with a sound fiscal hand, support struggling parts of the population and strained public departments (NHS, education, security, et al,) and even allow for a firmer approach towards Brexit," says the analyst.

Also of importance to the Pound is whether the budget is growth-friendly or not - if it is, it could help strengthen the Pound.

There is a possibility the budget could include more generous public spending, especially on housing, and if so, this has the potential to boost the Pound.

Increased public spending tends to increase economic activity, which can generate growth, inflation, and then higher interest rates.

Higher interest rates tend to boost the Pound by attracting more capital inflows from foreign investors seeking somewhere to park their money where it will earn higher returns.

"The chancellor has come under increasing pressure to deliver a popular ‘big and bold’ budget that includes increased spending as a means of reviving spirits in the struggling and divided government," says a briefing from TD Securities.

The politics of Brexit could also continue to impact on Sterling as EU leaders are scheduled to meet to discuss whether progress in divorce proceedings has been sufficient to allow discussions to move on to the all-important future trade relationship.

"In the near term, UK politics will likely be the main driver of GBP. In fact, GBP’s reaction to UK politics and our Brexit stress tracker is rising again," says Yujiro Goto of the Global FX Strategy desk at Nomura.

Although the size of the divorce bill remains a key sticking point there are signs the two sides are moving closer to a middle ground following reports from EU council head Donald Tusk that he found recent discussion with Theresa May surprisingly positive.

Any announcement of an agreement or being close to an agreement on the divorce bill would be extremely positive for the Pound.

The main hard data release is public spending figures for October at 9.30 GMT on Tuesday, November 21.

Public Sector Net Borrowing which is the difference between what the government earns in revenue and what it spends is expected to rise to 6.6bn, however, recent results have generally undershot expectations and a lower-than-expected amount might support
Sterling marginally by providing the Chancellor with more room to manoeuvre in his budget on Thursday.