Uptrend Intact, RBA In Focus

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Pound Sterling’s 2024 uptrend against the Australian Dollar is intact and the coming week could see a retest of last week’s high at 1.9570.

That said, volatility should be high due to a busy calendar that includes policy decisions by the Bank of England and the Reserve Bank of Australia.

The Pound to Australian Dollar exchange rate (GBP/AUD) has been in an uptrend in 2024 but we are witnessing some slowdown in momentum that is consistent with a broader consolidation right across the FX market.

The daily chart is nevertheless constructive, as GBP/AUD trades above the 50-, 100—and 200-day moving averages (DMA). Although fresh territory is unlikely to be tested in the next five days, we remain biased towards fresh highs in the coming weeks.

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The above chart shows that the 50 DMA (at 1.9312) is proving supportive, and we would expect any near-term weakness to fade here.

A break below the line could signal the trend is turning more decisively in favour of AUD strength.

The highlight of the coming week will be Tuesday’s Reserve Bank of Australia (RBA) interest rate decision, which will leave interest rates at 4.35%. This means the focus will be on any shift in guidance and whether the RBA believes now is the time to signal lower interest rates are coming.

The RBA maintains a slightly ‘hawkish’ policy stance, saying it would raise interest rates again if inflation data warrant it. Dropping the reference to further hikes could be interpreted as a ‘dovish’ outcome that can weigh on the AUD.

However, analysts we follow are confident that the March meeting would be too soon for the central bank to shift its policy stance in this manner.

“Further progress on bringing inflation back to target will be in the Q1 24 CPI, which prints on 24 April. But there is no need for the RBA’s communication strategy to pivot before the Board sees the hard data,” says a note from Commonwealth Bank of Australia. “We favour the Board once again retaining a mild tightening bias at the March meeting.”

On balance, such an outcome would be considered slightly supportive of the Aussie Dollar on the day.

“We would not expect much deviation from the central bank’s slightly hawkish rhetoric that further rate hikes cannot be ruled out. With the Australian rates market pricing in about a 1-in-3 chance of a rate cut next week and continuing to price in a full cut by September, such outcomes would be positives for the AUD,” says David Forrester, FX strategist at Crédit Agricole.

Analysts at ING Bank say the RBA is still way off the point of considering rate cuts, noting the RBA maintained a faint bias towards tightening at the last meeting, even if this was watered down a bit.

“It would be a very stark signal if the RBA were to remove that bias at its March meeting, and it may be worried that this would send too strong a signal at this stage. However, some further watering down and hints about a move towards neutrality might be in order,” says ING.

Pound Sterling sees a busy week ahead with inflation data due for release on Tuesday, PMIs for March on Thursday and retail sales on Friday.

The Bank of England is due to give its latest policy decision on Thursday, and like the RBA, no change is expected.

But, any signs that the Bank could be nearing its own rate cutting cycle could hit the Pound, particularly if Tuesday’s inflation figures undershoot expectations.

A full preview of these events can be found here.

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