GBP/AUD Outlook – May 2015


GBP/AUD declined a fraction in April, losing -0.3% for the month overall. The fractional decline in the cross was in part due to lower economic numbers from the UK, the interest rate differential and improving economic data out of Australia. UK numbers in April were lower than expected on balance, with Claimant Count Change, which declined -20.7K versus an expected -29.1K, while Retail Sales fell -0.5% versus an expected increase of +0.4%. Also, quarterly GDP increased only +0.3% compared to an expected increase of +0.5%, with the Trade Balance showing an expanding deficit of -10.3B versus -8.9B expected. Nevertheless, UK CPI came in flat for the month as was widely expected.

The BOE left its benchmark Official Bank Rate unchanged at 0.50% and the Asset Purchase Facility at 350B at its latest rate release on April 9th. The MPC Meeting Minutes for the April 9th meeting showed a unanimous vote on both the interest rate and the Asset Purchase Facility. The minutes concluded saying, “There was a range of views over the most likely future path of Bank Rate, but all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period.” As of this writing, it appears that the UK Parliamentary general elections will probably end with a hung parliament.

Australian economic data was mostly in line with expectations in April showing significant improvement in the labour market. Employment Change increased by +37.7K versus +14.9K expected, while the Australian Unemployment Rate declined to 6.1% from a downwardly revised 6.2%.

The RBA left its benchmark Cash Rate unchanged last month, but lowered the rate by 25 bps to 2.0% at their latest meeting on May 5th as was widely expected. In his Statement on the Monetary Policy decision, Governor Stevens noted that, “The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices. At today’s meeting, the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand.”

Due to the interest rate differential and improving economic conditions in both countries, the outlook for the cross is neutral in the near term and negative in the medium and long terms.


8th RBA Monetary Policy Statement, UK Halifax HPI, Trade Bal.
11th BOE Official Bank Rate, MPC Rate Statement, Aus. Annual Budget Release, NAB Business Confidence
12th UK Manufacturing Production, Australian Home Loans
13th UK Claimant Count Chg, Unemployment Rate, Average Earnings Index, BOE Inflation Report, Aus. Wage Price Index 19th RBA Mon. Policy Meeting Minutes, UK CPI, PPI Input, RPI
20th BOE MPC Meeting Mins, Aus. Westpac Consumer Conf.
21st UK Retail Sales, Aus. MI Inflation Expectations
27th Australian Construction Work Done
28th Australian Private Capital Expenditure
29th UK Second Estimate GDP, Prelim. Business Investment


GBP/AUD has risen overall from the 1.7215 low point it touched in September of last year to the 2.0029 high it reached earlier this year on February 11th. Nevertheless, the rise has evolved in a series of overlapping waves indicative of a corrective rally rather than an impulsive uptrend. Since that peak, the cross has consolidated above the 1.8825 reaction low seen on March 22nd in a triangular pattern now approaching its apex. The declining upper resistance line of this triangle presently lies at the 1.9525 level and is currently in the process of being tested, while the converging lower support line is now situated at the 1.8952 level.

Longer term, this recent upward correction in GBP/AUD came in the wake of a notable decline from the October 2008 peak of 2.6695 to the 1.4381 low of March 2013. A descending wedge formed toward the end of this down trend that demonstrated strong resistance in the 1.6185 to 1.6491 region, which the cross finally broke above in May of 2013. Furthermore, GBP/AUD’s upside correction has already pushed above the 23.6% Fibo level of its previous long term 2.6695 to 1.4381 drop at 1.7287, and the cross spent most of the last three months above the 38.2% Fibo level at 1.9085. While GBP/AUD exceeds the 38.2% level, a retracement target exists at the 50% Fibo level of 2.0538. In addition, a rising support line can be drawn through the key 1.4410 and 1.7215 reversal lows that should provide some support for the cross at its present 1.8559 level.

GBP/AUD has traded over its rising 200-day Moving Average since November and now reads at the 1.8753 level to support a bullish medium term outlook. Also, GBP/AUD’s 14-day RSI has been consolidating along with the cross. It now reads in central neutral territory at 55.87, which should not impede moves either way.

Overall, the near term outlook for GBP/AUD is neutral within a triangular pattern, although the medium term picture remains bullish toward the cross’ 50% Fibo level at 2.0538.

MAJOR LEVELS Current level 1.9515

Resistance 1.9527
Resistance 1.9647/84
Resistance 1.9855

Support 1.9307/15
Support 1.9100/04
Support 1.8948/89

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