Image © Adobe Images
The British Pound can ease back from recent highs against the Australian Dollar, although the bigger picture remains constructive.
The Pound to Australian Dollar exchange rate (GBP/AUD) has printed a series of fresh multi-year highs above 2.0, confirming a well-established uptrend that can extend into 2025.
However, the near-term picture could allow for a retracement of some of those recent gains, with the pullback potentially extending back to the 2.0 marker.
Last week's surge to a new interim peak at 2.03 took GBP/AUD into overbought territory, and our report released at the time warned that these overbought conditions must unwind.
The pullback duly commenced on Thursday, helped by a 'dovish' Bank of England policy update that undermined the broader GBP complex.
The retreat now brings GBP/AUD back towards the nine-day Exponential Moving Average (EMA), currently at 2.001, where some support is evident. While above the nine-day EMA the trend looks supportive, and weakness should be shallow.
The initial upside target will be the 2.0221 closing high reached last Wednesday.
Yet there is some scope for an Australian Dollar recovery in the coming days if global market conditions settle, which is possible given the holiday-thinned trading calendar.
Above: GBP/AUD at daily intervals with nine-day EMA showing. Lower panel shows RSI unwinding oversold (readings of 70 and above) conditions.
The U.S. Dollar's advance in December has been particularly detrimental to the Aussie currency, which is lower against most of its G10 counterparts this month.
Last Friday saw the USD pullback following the release of some softer-than-forecast PCE inflation data, that suggested 'peak hawkishness' in U.S. interest rate expectations might have been achieved in 2025. It is the reduction in bets for the degree of Fed easing in 2025 that has bolstered the USD since October.
'Peak hawkishness' could also mean peak USD, which offers scope for the high-beta AUD to recover.
Market liquidity will be thin until early January, which means what would typically be a small FX market move would be amplified by limited market anticipation.
That suggests swings in GBP/AUD cannot be ruled out in the coming two weeks, although extreme moves would be faded and will tend to mean-revert.
Year and month-end flows will also be a feature of proceedings. These are technical rebalancing movements of currencies with no fundamental or technical driver.
There is suspicion that this period will be USD-negative, which would automatically assist AUD across the board.