Pound-to-Australian-Dollar Rate Week Ahead Forecast: Downtrend Continues

- GBP/AUD trades on the back foot, enters the "sell-zone".

- Established downtrend likely to continue in coming week.

- GBP eyes Bank of England, AUD the Reserve Bank of Australia.

© kasto, Adobe Stock

The Pound-to-Australian-Dollar rate has fallen ever since reaching a high of 1.85 back in April and is likely to continue trending lower during the week ahead.

A major factor causing the slide has been a combination of Brexit uncertainty and trade tensions between the US and China.

This drove the Pound lower and the US Dollar higher, putting pressure on the Pound-to-Australian-Dollar rate, despite the Aussie also being severely dented by the Sino-US standoff. 

Most recently GBP/AUD fell to the 50-week moving average (MA) in the 1.75s, a level that would normally prompt a bounce higher since it is a tough obstacle. But on this occasion the bears were successful in breaking through and driving the price down to a new low of 1.7282 last week.

Above: Pound-to-Australian-Dollar rate shown at weekly intervals.

Although the pair formed a bullish hammer candlesticklast week it has not been confirmed by subsequent price action. This has lessened the significance of the hammer as a reversal signal, leaving the downtrend still in force.

Above: Pound-to-Australian-Dollar rate shown at daily intervals.

The daily chart shows how the pair rebounded from the 1.72 lows and moved up into the area between the 10 and 20 day moving averages, which is an area some traders call the 'sell zone' because it is the optimum place to reload short positions and bet on a continued downtrend.

GBP/AUD then formed a bearish doji and sold off, moving substantially lower to last week's close of 1.7427. If the exchange rate continues down in the week ahead and breaks below the previous lows at 1.7282, the bears would well and truly be back in control. The pair could then fall back to the 1.71 January low or even to 1.70.

The Pound: What to Watch

The main event for the Pound in the week ahead will be testimony from Bank of England (BOE) governor Mark Carney the Parliamentary Treasury Select Committee, on Wednesday, August 22, covering the inflation and economic outlook. 

Although the BOE raised interest rates at the start of August, the chances of a further hike in the short term are generally viewed as low mainly given the increasing uncertainty around Brexit. Carney recently said the chances of a 'no-deal' Brexit were "uncomfortably high" and that this presents a risk to the economy.

The Pound is highly correlated with interest rates because of their influence over foreign capital inflows. Higher rates tend to attract greater inflows of capital, which raises demand for Sterling. Therefore, traders will be analysing Carney's statements for clues on when rates might change again, even if more clarity is unlikely.

The other major release for the Pound is the Confederation of British Industry (CBI) Industrial Trends report for August, with overall activity balance forecast to decline from 11.0 to 10.0 when the report is released on Tuesday, August 21 at 11.00 B.S.T.

CBI surveys are often closely followed by the market due to their timeliness and can provide early insight into activity within the economy. 

Australian Dollar: What to Watch

The main event in the week ahead for the Australian Dollar will be the release of the RBA August meeting minutes on Tuesday, August 21, at 2.30 B.S.T.

"An upbeat RBA compared to the expectations shaped following its August 7 meeting will likely promote a stronger Aussie, with the opposite holding true as well," says Actionforex.com.

The Aussie weakened after the last meeting due to the RBA saying it did not see a rise in rates until 2020.

Besides the meeting minutes there is also commentary from RBA governor Lowe on Monday at 23.00, assistant governor Debelle at 4.10 on Wednesday and assistant governor Boulton at 3.45 on Thursday.

The RBA is more likely to hold interest rates at the current 1.5% level after recent mixed labour data which showed a fall in new jobs created but also a fall in the unemployment rate.

https://www.poundsterlinglive.com/aud/9725-australian-dollar-rises-as-risk-assets-recover-but-labour-data-sees-rba-remaining-on-hold

Trade tensions are a headwind for the currency given Australia's largest export destination is China so the changing course of trade talks, could very well impact on AUD in the week ahead.

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