GBP/AUD 5-day Forecast: Rebound Can Extend

• GBPAUD drawdown fades
• Leaving scope for rebound to extend
• But gains to be limited
• Chinese data key for AUD
• UK GDP due for release Thursday

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Pound Sterling has stabilised against the Australian Dollar following a run of losses and the coming week could see further gains, although data out of China poses the biggest risk to this view as any positive news could reboot the Aussie's recent rally.

Our two previous week ahead forecasts for the Pound to Australian Dollar had reflected on the oversold nature of the exchange rate and that a rebound/consolidation was increasingly likely.

This prediction played out nicely last week and now poses us the question of whether this price action can extend over the coming few days or whether that drawdown from 2023 highs extends.

For now, we are inclined to favour further consolidation with the potential for some gains.

The Australian Dollar had been one of 2023's underperformers in the G10 amidst a disappointing run of Chinese economic data and a Reserve Bank of Australia (RBA) which has hiked less than many of its global peers, most notably the Federal Reserve and Bank of England.

But analysts at Citi say they see one more RBA rate hike before year-end, and this could boost the Aussie on 'the crosses'.

"Tactically, a bullish AUD view may still be expressed via a short GBPAUD cross that has started to trend down since late August," says Citibank, in a recent currency strategy note to clients of its wealth management service.

Above: Technical analysis from Citi.

Higher nominal wages, a large stock of excess savings and a strong labour market still raise upside risks to spending and growth for the remainder of the year, according to Citi's economists.

Citi pencils in one final rate hike in December of 25bps to take the RBA cash target to 4.35%.

The coming week sees some low-key Australian data releases that are unlikely to shake expectations for an RBA rate hike, but China will be releasing some market-moving numbers that will almost certainly impact the Aussie Dollar.

Above: The GBPAUD has recovered from oversold (see RSI highlighted in the lower panel). Exchange rate alerts: set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

Monday sees Australian building approvals figures released, which should give a hint at how past interest rate hikes at the RBA have impacted the sector.

Look out for Westpac's consumer confidence survey on Monday and NAB's business confidence release.

Real interest comes on Wednesday when Chinese money supply numbers are released and any positive surprises here can provide a boost as it would suggest the world's largest economy continues to see a pick up in activity.

New loans are expected to have increased CNY2,500.0BN while loan growth is anticipated to have risen 11.2%. Last month's figures beat expectations and boosted China-facing assets such as the Australian Dollar.

Chinese inflation numbers are released on Friday (2AM BST) and the market looks for a headline CPI increase of 0.2% year-on-year in September, with a beat potentially offering a boost to the likes of the AUD.

Chinese export numbers are also due for release on Friday (4AM BST) and the market is looking for a -8.3% figure, a slight improvement on August's -8.8%.

Imports are expected to read at -6.0% and any improvement could signal rising demand for Australia's raw material exports, which is why this is a potentially important release for the Aussie Dollar.

The UK economic calendar comes back to life this week with Thursday's monthly GDP release and a number of other economic data prints.

The headline figure to watch is August's monthly GDP where a 0.2% expansion is expected in what amounts to a sharp recovery from July's weather-impacted -0.5% reading.

Should the number beat expectations it would amount to another positive surprise that could boost the Pound. Recall, it is data that is in the driving seat on global currency markets at present and last week we saw Sterling put in some decent gains following the upgrade to September's PMI readings.

There is interest elsewhere at 7AM on Thursday when manufacturing production and industrial production numbers are also released.

However, these tend to be overshadowed by the GDP figure, as does the monthly trade balance release.

Above: File image of BoE Governor Andrew Bailey. Still courtesy of Bloomberg.

Watch out for Bank of England Chief Economist Huw Pill, who is due to speak at 10AM on the same day. Pill's last speech made in Cape Town proved to be of relevance in it set out the Bank's desire to see UK interest rates stay elevated for an extended period.

More of the same could underpin the Pound's prospects against currencies where interest rate cuts are expected to commence earlier in 2024.

Governor Bailey speaks at 9:00 on Friday and could be expected to repeat the line that he expects inflation to fall notably over coming weeks, although the battle has not been won.

Therefore, he will likely parrot the Bank's official stance that it remains ready to hike interest rates again. On balance, this should support market expectations for a potential rate hike before the year is done, which would support Sterling.