- Written by Joaquin Monfort
GBP/AUD is trading mixed in the short-term but remains in an uptrend over the longer-term horizon.
The Pound-to-Australian Dollar rate is in an established uptrend which is rising broadly within a channel clearly visible on the weekly chart (see below).
the medium-term uptrend will probably continue rising given there are no strong reversal signals and the MACD indicator is above zero which means there is momentum behind the move.
The short-term trend is less clear, however, after the market rose during October and November but then fell during December, before going sideways during the beginning of January, rising later in January and then rolling over after peaking a few days ago.
The lack of a clear direction on the daily chart makes us reluctant to issue a forecast on the short-term chart as the market could whipsaw in volatile moves in either direction.
Data and Events for the Australian Dollar
The main release in the week ahead for the Australian Dollar is inflation data for the fourth quarter, out on Wednesday, January 31 at 00.30 GMT.
Inflation stood at 1.8% in the third quarter and analysts expect that it will rise to 2.0% in the fourth quarter.
The Reserve Bank of Australia (RBA) raises or lowers interest rates in response to inflation; hiking rates to combat rising inflation and vice versa for falling inflation.
Interest rates impact on the value of the Australian Dollar with higher interest rates driving up the Aussie by attracting greater inflows of foreign capital, drawn by the promise of higher returns.
Another key release is NAB Business Confidence which is used as a barometer for the general health of the economy, and it out at 00.30 on Tuesday, January 30, with the consensus expectations for a rise to 12 from 6 previously.
Data and Events to Watch for the Pound
The main data release in the week ahead for the Pound is survey data for Manufacturing and Construction in January, in the form of Markit IHS’s purchasing manager indices (PMIs).
These are normally a reliable forward indicator of activity and trends within the broader economy and economists use them to predict growth. Markets will be looking for confirmation that the better-than-forecast economic momentum enjoyed by the UK economy in the final quarter of 2017, confirmed in last week’s GDP data, has extended into the new year.
Manufacturing PMI is out at 9.30 GMT on Thursday, February 1 and is expected to rise to 56.5 from 56.3 previously.
Global investment bank TD Securities say economists are being too optimistic about Manufacturing and the index will fall to 55.9 instead of rise to 56.5; an outcome that would certainly weigh on the Pound we believe.
“We’re looking for a modest pullback in the manufacturing PMI after last month’s larger nearly 2pt decline, with the index falling from 56.3 to 55.9 in January. We expect to see some of the weakness in the flash Eurozone print reflected in the UK outcome,” said TD Securities in a briefing to clients ahead of the new week.
Construction PMI is out at the same time on the following day and is forecast to fall to 52.0 from 52.2 in December. Note that the sector is in recession, according to official GDP data, so some recovery will be keenly anticipated. However, construction is a small component of the UK economy and the impact on Sterling will likely be small if any. Nevertheless, clues on longer-term prospects for the economy will be key to overall sentiment.
One further event of interest to Pound-watchers in the week ahead is Bank of England (BOE) governor Mark Carney’s testimony to the Lord’s Economic Affairs Committee at which he will have the opportunity to comment on the state of the economy and monetary policy before the ‘black-out’ period prior to the next official BoE rate meeting.
Markets are keen to ascertain whether or not the Bank of England will raise interest rates in 2018, in a follow up to 2017’s rate rise. Markets are anticipating this is the case, but a bullish assessment by Carney could certainly be the catalyst to a higher Sterling in the coming week we believe.
Carney’s appearance in Davos last week was striking in that he hinted that he is taking a more optimistic stance on the UK economy, seeing growth picking up sharply towards the end of the year as the UK “consciously recouples” with the accelerating global economy.
He will certainly be queried on this, and the answers will be closely followed by currency traders.