Pound to Australian Dollar Forecast: The GBP AUD exchange rate confirmed the uptrend

Pound to Australian Dollar Exchange Rate Forecast - Sterling surged against the Australian Dollar during last week's sessionThe GBP AUD exchange rate confirmed the uptrend

Foreign Currency Market Update – GBP / AUD Update

The GBP AUD exchange rate confirmed the uptrend which it has been on since the middle part of February during last week’s session in the currency markets, by breaking to a new seven and a half month high of 1.6177 on Tuesday. The move upward was once again primarily driven by AUD weakness, as the minutes of the most recent Reserve Bank of Australia’s policy meeting were released. They showed that the Bank’s committee is anticipating Australian economic growth to be ‘below trend in the near term’, sparking speculation amongst investors that the RBA is set to cut domestic interest rates again later in 2012.

However, GBP AUD’s spike higher proved short-lived; the pair was trading back down in the 1.58′s during last Thursday’s session, following a series of doom-laden comments from UK policy makers including Prime Minister David Cameron and Governor Mervyn King, which reminded market participants of the catastrophic effect which a disorderly debt default by Greece would have on the UK economy due to British retail banks’ exposure to Greek bonds and the UK’s heavy dependence on trading links with the eurozone.

Friday brought renewed downside pressure for the Aussie Dollar with the release of this month’s Australian Consumer Inflation Expectation survey which showed that domestic consumers are anticipating the rate of inflation in Australia to drop back to 3.1%, only just above the government’s target band of 2.0-3.0%. Last month’s counterpart figure showed at 3.3%, suggesting that Australians feel that domestic price rises are on the wane. If their impression is correct, this will give the RBA increased scope to cut interest rates as 2012 progresses.

As this week’s session gets underway, the Aussie is trading on a slightly firmer footing, following separate calls over the weekend from the G8 group of nations and China’s Premier Wen Jiabao for increased focus to be placed on economic growth by the world’s leading economies. If the Australian Dollar continues to gain ground this week and GBP AUD fails to break last Tuesday’s high of 1.6177, then a negative signal would be sounded for the pair and a retracement back down towards the low 1.5000s could follow. However, more bad news from the eurozone, triggering a break above 1.6177 would once again confirm GBP AUD’s uptrend, setting last August’s 14-month high of 1.6390 as a near-term target.

Heads Up

Summary of major upcoming data releases that we think may move the market.

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