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Pound Sterling fell against the Australian and New Zealand Dollars last week but further downside could be limited in the days ahead, with support found around 2.0685 and 2.2131 in GBP/AUD and GBP/NZD, respectively, as economic headwinds loom large over the antipodean currencies.
GBP/AUD and GBP/NZD both fell last week from near their highest since before the Brexit referendum as Sterling underperformed amid a unraveling of the US Dollar and heavy losses in American stock markets, which were accompanied by periodic bouts of weakness for Treasuries.
Meanwhile, the Australian Dollar and closely-linked Kiwi outperformed amid a surge in interbank trading of the Aussie, with both currencies outpacing even a parabolic Euro and almost keeping pace with the Swiss Franc, pushing GBP/AUD and GBP/NZD back near support levels around 2.0620 and 2.2134, respectively.
“AUD/USD can edge higher this week if the rotation out of USD assets continues. AUD/USD can receive additional support if Chinese policymakers announce policy support to shield their economy from US tariffs,” says Kristina Clifton, an economist and strategist at Commonwealth Bank of Australia. “AUD/GBP will lift if the Chinese authorities announce additional stimulus to help offset the impacts of the US’ 155% tariffs.”
Above: GBP/AUD and GBP/NZD shown at daily intervals with Fibonacci retracements indicating possible areas of technical support for GBP/AUD. Click for closer inspection.
Both the Australian and New Zealand Dollars face potential economic headwinds arising from the impact newly-adopted US tariffs could have on the Chinese economy, the largest export market for antipodean goods, hence why further declines in GBP/AUD and GBP/NZD could be limited.
As a result, Australian jobs figures out on Thursday are unlikely to offer much signal and might well go overlooked in a similar manner to the inflation figures out on Wednesday in New Zealand where the central bank is nearing an end of its easing cycle, and made its policy outlook clear last week.
“We have some UK data this week in LFS employment (which admittedly still has zero credibility) and CPI,” says Taylor Broom, a trader on the FX desk at JPMorgan, in a Monday market commentary.
"A soft one on the latter will certainly see the market get more aggressive on the BoE and language from them of late seems to hint that tariffs could be more deflationary than feared," he adds.
Upside potential for Sterling is constrained, however, due to the restrictive interest rates maintained by the Bank of England and an incoming Storm Rachel that threatens to further undermine the UK economy.
The latter is due to the Chancellor’s dogmatic adherence to a now-toxic set of self-imposed ‘fiscal rules,’ which are archaic relics of European Union membership that risk seeing HM Treasury add further spending cuts and tax increases to the government’s numerous other economy-sabotaging policies later this year.
Above: GBP/NZD shown at weekly intervals with Fibonacci retracements indicating possible areas of technical support. Click for closer inspection.