Pound-to-Australian Dollar Rate: Technical Forecast, Data and Events to Watch in the Week Ahead

The Aussie faces the Reserve Bank of Australia this week while the Pound will be influenced by European politics and the GBP/AUD chart suggests potential for more upside.

The Pound has advanced 3.5% against the Australian Dollar over the course of the past month with the GBP/AUD exchange rate now found at 1.7726.

Our technical studies of the GBP/AUD chart shows the Pound to be in a strong position to capitalise on the previous week's gains, following a recent break above the top of a range it has been in during all of 2017.

The breakout from the range suggests the exchange rate will continue higher and may be moving into a stronger longer-term bullish trend.

The pair will probably move higher towards a target at 1.8000 initially, followed eventually by 1.8400, which is just below the 200-week moving average (MA) at 1.8432.

The 200-week MA is likely to present a formidable obstacle to further gains as large moving averages often resist trending prices as they attract more supply; in fact prices often completely reverse after touching a large moving average. 

Confirmation of a move higher to the targets at 1.8000 and 1.8400, would come from a break above the previous week's highs at 1.7913.

The exchange rate fell steeply after the UK referendum of membership of the EU, and bottomed in late 2016, at 1.5580.

Since then it has been oscillating within a range between 1.55 and 1.77 - which can be seen outlined by two turquoise lines on the chart below.

Last week the pair broke out above the top of the range at 1.7500 and despite pulling back, we now see a good chance of the pair extending higher.

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Data and Events for the Australian Dollar

The main event for the Australian Dollar in the coming week is the meeting of the Reserve Bank of Australia (RBA).

The RBA sets interest rates which impact on the Aussie because higher interest rates tend to attract more foreign capital due to the promise of earning higher interest returns.

Greater capital inflows increase demand for the currency increasing its value.

Whilst no-one thinks the RBA will actually raise rates at the meeting on Tuesday, December 05 at 3.30 GMT, the accompanying statement and post-meeting commentary from RBA governor Lowe will be scrutinized for indicators of what might happen in the future.

Data has been mixed of late with positive rises in employment, manufacturing and the price of iron ore offset by falling consumer confidence and inflation. 

"Since the last meeting in November, consumer confidence has fallen, inflation expectations declined and housing activity slowed. Labor market indicators were mixed but for the most part, the RBA is happy with the jobs market. Business confidence and manufacturing activity also improved as iron ore prices rocketed higher. These improvements will encourage the RBA to maintain their neutral policy stance," says BK Asset Management Managing Director Kathy Lien. 

Another major release for the Aussie is Q3 GDP data released on Wednesday 04 at 00.30.

Most economists believe growth will rise by 3.0% in Q3 compared to the same time 2016, and by 0.7% from the previous quarter.

The current account (Q3) and retail sales data for October are out before the RBA meeting announcement on Tuesday at 00.30.

The current account is expected to see the deficit narrow from -9.6bn to -9.2bn; retail sales are expected to rise by 0.3% compared to the month before.

Data and Events for the Pound

The main fundamental drivers dictating price action at the moment are political in nature and focused on the twin concerns of how Brexit talks are going, and how stable the government is, and this is likely to continue in the week ahead.

The Pound rose last week on news the deadlock in Brexit negotiations had been broken, and the two sides were close to agreeing on a divorce bill, the Irish border, and citizen rights. Should this be confirmed at the mid-month European Council meeting of E.U. leaders talks will be allowed to move onto the more important subject of trade.

Yet, ultimately nothing has been confirmed and the Pound has risen on hearsay alone so there are risks of disappointment.

There is a possibility more concrete confirmation may be forthcoming in the week ahead when Theresa May visits Brussels to talk 'turkey'.

"Next week, May heads to Brussels to meet with Jean-Claude Juncker and this is her first opportunity to provide the U.K.'s divorce bill offer and to talk about their plans for the Irish border. Then on December 6th, EU ambassadors resume preparations for the summit," says Kathy Lien.

The other main political driver impacting on the Pound is the stability of the government.

From a hard-data perspective, the week opens with Construction PMI at 9.30 GMT on Monday, December 3 which will give us insights into how the sector fared in November.

The consensus amongst analysts is that it will rise to 51.0 in November, from 50.8 in October.

Services PMI is on Tuesday at the same time and is forecast to fall to 55.0 from 55.6 previously; this is the most important reading of the week as the services sector accounts for more than 80% of U.K. economic activity.

Analysts at TD Securities think the market is underestimating the sector and a pro-Sterling result beat on expectations could be delivered:

"We look for upside risks to the November Services PMI. Spillovers from optimism in the manufacturing sector (where business-to-business activity has remained strong) as well as from the rest of Europe (where the PMIs and growth are accelerating into year-end) should help support optimism in the sector."

The week ends with the Trade Balance and Industrial and Manufacturing Data out at 9.30 on Friday, December 8.

The trade deficit is expected to widen slightly to -11.5bn in October from -11.25bn and confirm the country's hefty reliance on imports remains intact; something that concerns analysts who believe the Pound could one day have to adjust materially lower in order to balance the situation.

Both Manufacturing and Industrial production are forecast to rise by 0.1% in October; disappointment here could see Sterling end the week in soft fashion.

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.