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Australian dollar welcomes peace deal, RBA decision is week's main calendar risk.
The Aussie dollar advances across the board at the start of another busy week for global FX, with the high-beta currency welcoming news of the imminent signing of an interim peace deal between the U.S. and Iran.
The reopening of the crucial Strait of Hormuz will be particularly welcomed by Australia, which sources the majority of its oil-based energy from this corridor.
The Aussie's advance stifles a recovery in the pound-to-Australian dollar exchange rate and raises the prospect of a deeper pullback emerging in the coming days, one that would be in keeping with the overarching multi-month selloff.
Having reached a high at 1.9074 last week, the pair is back at 1.8982 at the time of writing Monday, suggesting re-emergent downside pressures:
The technical overlay on the daily chart is interesting as it shows the recovery emerged into the downtrending 100-day moving average - currently at 1.9014 - where it was arrested.
In short, this technical indicator has all but scuppered the GBP/AUD's recovery and could be about to pull the spot rate lower.
The rejection from the 100-day moving average and subsequent pullback indicate sellers remain active around the psychologically important 1.9000 level. For now, this leaves GBP/AUD caught between improving short-term momentum and an intact medium-term downtrend.
RBA Ahead
Failure to overcome the 100-day barrier would likely see the pair drift back towards support around the rising 21-day moving average near 1.8860.
With the technicals putting a hold on GBP/AUD's upside ambitions, it falls to the Reserve Bank of Australia's interest rate decision on Tuesday to give a helping hand to sterling bulls.
A run of softer data and taxation changes announced in the Federal Budget should ensure the RBA holds the cash rate steady at 4.35%.
What will be more important for markets is if the Bank's messaging signals the cash rate is on a prolonged hold.
If yes, the AUD could struggle on the day. "Australia’s RBA is almost certain to keep rates on hold tomorrow and may cast doubt about the need for further hikes. Yet, the Australian dollar is one of today’s biggest gainers against the US dollar amid the relief rally over the US-Iran deal," says Raffi Boyadjian, Lead Market Analyst at XM.com.
If, however, the RBA signals it can raise rates again, the AUD could strengthen.
"If we are right about the inflation profile from here, the RBA will be surprised on the upside. We therefore retain our view that further rate hikes will occur in the following meetings (August and September)," says Luci Ellis, Chief Economist at Westpac Group. "This is consistent with the RBA’s priority to get inflation down."
If Westpac is correct, then AUD resilience will be a story for the coming weeks.