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The Australian Dollar slumps against the Pound at the head of a busy week.
The Pound-to-Australian Dollar exchange rate rallies to its highest level since March 2020 at 2.0685 on Monday as the uptrend finds fresh impetus amidst a slump in Asian equity markets.
Asian stocks are under pressure ahead of the midweek tariff announcements due from the White House, with an expectation that Asian countries will be amongst the biggest losers.
This is because the reciprocal tariffs that U.S. President Donald Trump is seeking will naturally impact those countries that have import tariffs on U.S. goods, of which Asia has many.
Treasury Secretary Scott Bessent said recently that tariffs would focus on the "dirty 15," a percentage of the world's economies that have substantial tariff and other barriers and together account for "a huge amount of our trading volume."
Of these 15 trade partners, nine are in Asia.
The Australian Dollar is the G10's leading proxy for exposure to Asian markets and sentiment, meaning it's all looking quite unhelpful for the currency at present.
"AUD and NZD have been the big losers in the G10 in the second half of March as pressure from Chinese yuan proxy trades intensified," says Francesco Pesole, FX Strategist at ING Bank.
"We don’t see much respite in sight given our relatively pessimistic view on the US trade policy to be rolled out in April," he adds.
Trump Confirms Tariffs Will be Truly Universal
"You'd start with all countries, so let's see what happens," Trump told reporters on Sunday aboard Air Force One. Financial market commentators are blaming the comments for a fall in global markets on Monday.
However, there is absolutely nothing new in the comments, meaning we are most likely seeing a positioning adjustment on financial markets as traders get ahead of the headlines.
We think this sets the FX market up for a classic relief rally following the Wednesday announcement.
Under such a scenario, AUD would appreciate and push GBP/AUD back below recent highs.
That being said, any strength will likely be short-term in nature as the tariff story will play out over many months, and it's clear it is not a supportive backdrop for AUD.
The story written into the GBP/AUD charts is also clear: this exchange rate is in a long-term depreciation trend, and the path of least resistance is higher. Momentum is positive and the Relative Strength Indicator is pointed higher and is yet to reach overbought conditions.
From here, the next target will be the 2020 high at 2.0858.
RBA in Focus
There is some domestic interest in the form of a Reserve Bank of Australia (RBA) interest rate decision.
The central bank is likely to hold interest rates on Tuesday, even if February headline inflation came in cooler than expected. The trimmed mean CPI reading - which is a measure of core inflation - read at 2.7% in February, which means it remains too hot to deliver back-to-back cuts.
"The February cut was followed by an inflation rebound that prompted a hawkish re-adjustment of the policy tone by the RBA. It is likely Governor Michele Bullock wants to avoid a repeat of that and will require at least another encouraging inflation print before easing policy again," says Pesole.
"Expect a cautious message," he adds.
The RBA decision could offer some volatility for AUD exchange rates on the day, but expect moves to be faded as attention shifts back to the more important question of U.S. tariffs.
GBP/AUD upside remains the path of least resistance under such circumstances.