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The Australian Dollar is strengthening, but GBP/AUD could yet turn higher.
The Pound to Australian Dollar exchange rate (GBP/AUD) is behaving and observing the boundaries set out in our Week Ahead Forecast suite.
As can be seen, it duly kissed the resistance at 2.1035 last week, where the rally failed and yielded to a short-term pullback.
That pullback extends at the start of the new month, but brings the exchange rate onto the nine-day exponential moving average.
So, the two scenarios that could play out are: this moving average offers support, and the trend higher extends with a retest of 2.10 and then 2.1035 shaping up later in the week.
The second scenario would involve a break below the moving average, inviting a selloff to 2.08. Beyond here would be 2.0480, which would become viable in the next couple of weeks.
For now, we give more than 50% odds that the upside story plays out, simply because the trend heading into this pullback to the nine-day moving average was higher. It's therefore a rules-based conclusion.
Above: GBP/AUD at daily intervals.
Also, fundamentals are broadly in favour of such an outcome: Trump is beating the trade war drums again, and the 2025 FX playbook says this is rarely helpful of AUD.
For now, it is the USD that is bearing the brunt of Trump's announcement, which came after Friday's market close, that he is doubling steel and aluminium tariffs to 50%, starting June 4th.
He also said that China had "totally violated" the U.S.-China trade deal, bringing to an end the steady improvement in trade relations between the two countries.
U.S. Trade Representative Jamieson Greer, who helped establish the agreement made between the U.S. and China in Geneva, said China has been "slow" in rolling out its compliance to the recent trade agreement, "which is completely unacceptable and has to be addressed."
China’s Ministry of Commerce said it "firmly rejects these unreasonable accusations" and said that the U.S. had "successively introduced a number of discriminatory restrictive measures against China" since their talks in Geneva in mid-May. These include chip and student visa restrictions.
"If bilateral relations between the US and China sour further, the U.S. and Chinese governments may reinstate tariffs and non-tariff measures on each other. In that case the PBoC would likely weaken the CNY to offset the impacts," says Kristina Clifton, Senior Currency Strategist at Commonwealth Bank of Australia.
The Australian Dollar trades as a China proxy, and weakness in the Yuan would likely weigh on the AUD as a result.
There are no domestic events of note from then UK and Australia that are expected to materially move GBP/AUD in the coming week.