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AUD/GBP is trading at 0.5525 and economists at Westpac expects the pair to surpass the 0.56 level due to Brexit issues. Nonetheless, the AUD/GBP could see near-term weakness which would be a good opportunity to buy on dips to 0.54.

Key quotes

“The resurgence of Covid-19 cases in Victoria is obviously a concern but AUD price action suggests it is not regarded as a game-changer.” 

“The consensus forecast is for Australian GDP to contract -4% over 2020, versus -8.5% in the UK. Both the RBA and BoE are pursuing very expansionary monetary policy (BoE somewhat looser) and fiscal support is substantial. In Q2, Australia’s fiscal boost was larger than the UK’s but the UK is planning fresh support as Australia looks to trim its spending.”

“Australia’s C/A position (surplus) is much more supportive than the UK’s (deficit), helping AUD against GBP. Potential wobbles over Brexit negotiations also open up risks for AUD/GBP to push beyond our 0.56 end-Sep baseline.” 

“Nearer-term, however, the Aussie looks quite stretched and is pricing in quite an upbeat equity outlook. AUD is likely to keep underperforming on any equity pullbacks, which could extend as far as AUD/GBP 0.5400/20. This would be an attractive dip to buy on a multi-week/month outlook.”