Currency Pair of the Week: GBP/AUD

With the possibility of a more dovish RBA and a more hawkish BOE, GBP/AUD may have more volatility than some other pairs this week!


Since the full reopening of the UK from Covid-19 restrictions on July 21st,  the Great British Pound has been ripping higher.  Thus far, the reopening has gone well with reports of declines in coronavirus cases in the UK, as opposed to many other countries around the world where the number of new daily cases are increasing.   The direction of the coronavirus, in particular the Delta variant, will be one of the main topics discussed when the BOE meets on Thursday.  Deputy Governor Ramsden and  MPC member Saunders have said that they would like to begin reigning in the bond-buying program sooner than later as inflation reached 2.5% in June and is expected to temporarily rise to 3%. The UK’s current bond buying program will conclude at the end of the year.  However, with the UK furlough program ending on September 30th, the Committee may not be in a hurry to taper further as they wait for more data once the program ends. Economic projections are also due at the meeting and it will be important to watch inflation and GDP forecasts. 

Everything you need to know about the Bank of England

After holding the coronavirus at bay for more than a year, Australia has been hit particularly hard by the Delta variant. Sydney has been in lockdown since June 26th, which has ben extended indefinitely.  Soldiers are currently patrolling the streets to enforce the stay at home rule.  In addition, Brisbane is currently in lockdown.  The lockdown was set to expire on Tuesday; however, it has been extended until Sunday.  This makes for a tough decision for the RBA, which meets on Tuesday.  The RBA has been in tapering mode, decreasing asset purchases from A$5 billion per week to A$4 billion per week.  However, with PMIs, Retail Sales, and Employment dropping during June and inflation rising during Q2, the RBA may have to changed direction and increase bond buying this month to support the economy.  The rise in coronavirus cases is proving to be tougher to deal with than expected, the poor economic data as of late may cause the central bank to increase bond purchases.

Australian Dollar explained

On a weekly timeframe, GBP/AUD has been in a symmetrical triangle since March 2013.  Most recently, in the Fall of 2020, the pair pulled back from the top trendline of the triangle to test the bottom trendline, near 1.7416 and held.  Since then, GBP/AUD has bounced and broke through the 38.2% Fibonacci retracement level from the March 2020 highs to the January lows near 1.8738.   The next resistance above on the weekly timeframe is the 50% retracement level of the same timeframe bear 1.9148.

Source: Tradingview, StoneX

On a daily timeframe, GBP/AUD had been trading in a range since June 1st, 2020 between 1.7416 and 1.8475.  Within that range, the pair broke out of a symmetrical triangle near 1.8225 and continued higher, breaking out of the range on June 8th.  The pair halted at horizontal resistance near 1.8990, which provides the first level of resistance.  Above there is the previously mentioned 50% retracement level and then horizontal resistance near 1.9300.  Notice that the daily RSI is in overbought territory and turning lower. This may allow for a pullback as the RSI moves into neutral territory.  Horizontal support below is at top of the previous range near 1.8475 and the July 6th lows near 1.8255.  Below there, support is at the top downward sloping trendline of the symmetrical triangle near 1.8100.

Source: Tradingview, StoneX

As with most currency pairs this week, there is potential for volatility in GBP/AUD due to the spread of the delta variant of the coronavirus.  Throw in a possible more dovish RBA and a possible more hawkish BOE, and GBP/AUD may have more volatility than some other pairs!

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