GBP/AUD: Scope to test 1.8350 – Westpac

Sean Callow, analyst at Westpac, suggests that AUD/USD and GBP/USD have been understandably choppy in recent weeks, with AUD absorbing the volatility of US-China trade relations and sterling of course focused on Brexit risks.

Key Quotes

“AUD/GBP has traded wider ranges than in say, May-June and is down from late July highs (when global risk appetite peaked) but the pair is almost dead flat year-to-date.”

“AUD/USD has bounced over the past week, aided by the resumption of US-China trade talks even as new tariffs commence and Australian data that has fit the RBA’s impression of a lack of urgency to cut rates again. Market focus on resource company dividend payments may also have helped.”

“The cautious optimism over trade relations may well persist into the October meetings, supporting AUD. But rate cut talk should pick up as Australia’s unemployment rate fails to progress towards the RBA’s desired 4.5%, chipping away at AUD on crosses.”

“GBP short-covering should extend somewhat during the parliamentary recess, given reduced danger of a hard Brexit after PM Johnson’s various parliamentary defeats. But an early election is still likely, with investors unlikely to be enthused about the major parties’ policy platforms.”

“In coming weeks, the pound should outperform, with scope for AUD/GBP 0.5450 then 0.5400, or GBP/AUD 1.8350 then 1.8500. Once an election becomes the main focus, sterling weakness should resume.”