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The pound is set to recover in the coming days ahead of a fresh push towards October lows early in the new month.
The pound to Australian dollar exchange rate (GBP/AUD) has endured an abrupt shift in fortunes: it powered to 2.0850 in mid-month in an impressive rally that followed a resurgence in trade tensions between the U.S. and China.
However, GBP/AUD soon found it was rocketing up on an empty tank, as that initial fear that the U.S. and China were entering a new and serious confrontation was merely posturing ahead of this week's Trump-Xi meeting.
With its rocket fuel spent, GBP/AUD is plummeting back down to reality with a test of 2.0328 greeting us on Monday. Those with GBP/AUD payment requirements are welcome to request a free and no-obligation quote; we can deliver up to 4% more currency than most banks.
Aussie dollar's Monday gains follow the positive weekend news that the U.S. and China have reached a series of agreements that will allow Presidents Trump and Xi to shake hands on a new trade accord in South Korea later this week.
The Aussie is sensitive to trade war flare-ups, and signs that both the U.S. and China want a deal are giving the currency supportive tailwinds. "Within G10 FX, AUD is the strong outperformer given the US-China trade news," says Noah Buffam, analyst at CIBC Capital Markets.
GBP/AUD's recent falls mean it has veered sharply from its nine-day exponential moving average, and we think it needs to touch base and close the gap.
This means we look for a short-term consolidation/recovery ahead of another move lower. By early next month, we could be seeing 2.0291 and then 2.0243 tested.
Should global investor sentiment continue to provide the Aussie dollar with fair winds, then GBP/AUD can look to head down to the big 2.0 level befor the year is out.
So it's advantage for AUD for now.
Keep in mind that Australian quarterly CPI inflation will be released on Wedneday and it will likely have an impact on the Aussie.
The RBA looks pretty conflicted on what it's next moves will be, meaning data can hold sway over market expectations. In fact, RBA Governor Bullock signalled on Monday that the RBA may not cut in November if CPI surprises higher this week.
The market looks for a 1.1% increase in the third quarter.
Anything below will weigh on AUD and help GBP/AUD shape out a near-term recovery. Anything stronger will kill put the RBA into a holding pattern, benefiting AUD.
CIBC Capital Markets say the RBA will stay on hold in November, and offer cautious guidance as they are likely very close to neutral.
"We like tactical AUD/GBP upside through next week’s RBA and BoE meetings as we look for a relatively dovish BoE meeting and a hold from the RBA," says CIBC's Buffam.