GBP/AUD Week Ahead Forecast: The Fightback

• GBPAUD rally puts to bed recent weak spell
• 200 day MA is immediate near-term target
• Solid support located at 1.86
• Aussie inflation is this week's highlight

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The Pound to Australian Dollar has walked into the new year with renewed vigour and could be about to lay claim to the long-running 2023 range once more.

Having dipped through the final quarter of 2024, GBPAUD stabilised and has proceeded to record a solid run of three consecutive daily advances, which suggests that Q4 weakness is fading.

The below chart shows the favoured range of recent months, which tells us this is likely where markets see a fairer valuation for the exchange rate, providing a gravitational pull:

Above: GBPAUD at daily intervals, showing the preferred range. Track AUD with your custom rate alerts. Set Up Here.

Our favoured short-term stance on GBPAUD is for a return to this range, with the 200-day moving average offering a near-term target at 1.9040.

We would want to see the 200 DMA broken and held over a number of days to become more confident that the recent downtrend has truly broken.

Any weakness from here will potentially be limited to the clear support zone located at 1.86, which arrested the exchange rate's decline in December.

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The start of the new year sees the Australian Dollar succumb to a broad-based retreat in 'high beta' currencies and financial assets, i.e. those assets that are positively correlated with stock markets and global investor sentiment.

Risk sentiment has deteriorated over recent days amidst rising U.S. bond yields as markets reappraise the prospect of U.S. interest rate cuts, judging that the first cut might come later than previously expected.

"We expect downward pressure on the AUD and NZD to persist in the near term, amid a firmer USD backdrop," says a weekly strategy note from the FX research desk at Barclays. "These currencies have taken the brunt of the pain among G10 FX (aside from the JPY) amid the USD's New Year rally."

The key domestic event of the week for the Australian Dollar is Wednesday's 00:30 GMT release of inflation data for November.

The market is looking for a reading of 4.40% year-on-year, down from 4.90% previously. The rule of thumb says the Australian Dollar can find support if the figure beats expectations.

"Investors are still paying close attention to the Australian economic data, however, as they risk seeing the RBA lag other central banks in cutting rates and giving the AUD support during 2024," says a note from the FX strategy team at Crédit Agricole.

The Australian Dollar has put in a soft performance at the start of 2024, with analysts at one investment bank saying fading investor confidence that China’s policymakers will undertake a large stimulus in 2024 is to blame.

Analysts at Crédit Agricole say disappointment has weakened iron ore prices and the AUD in the New Year.

Relatively restrained Chinese stimulus efforts proved a key driver of global investor sentiment in 2023, with notable implications for the China-linked Aussie Dollar, and recent price action suggests this will remain a theme for the coming months.

Furthermore, "a retreat of investor expectations for steep Fed rate cuts has also weighed on the currency," says Crédit Agricole, noting the recent retreat in rate cut bets following some stronger-than-expected U.S. data prints.

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