Pound Sterling To Australian Dollar Exchange Rate (GBP AUD) Technical Outlook Forecast

November 17, 2011 - Written by James Fuller

STORY LINK Pound Sterling To Australian Dollar Exchange Rate (GBP AUD) Technical Outlook Forecast

Movement on the GBP AUD exchange rate continues to be dominated by the Australian Dollar’s status as a risk-sensitive currency.

In times of economic crisis and uncertainty, institutional investors shift their funds out of the Australian Dollar and into safer assets, (primarily the US treasury bill).

As the recent economic crisis unfolded in the Autumn of 2008, causing the demise of investment banks Lehman Brothers and Bear Stearns, the GBP AUD exchange rate spiralled to briefly touch 2.7000.

As panic in the markets subsided, investors regained their appetite for risk, global stock markets rose and the Australian Dollar was well-supported.

This saw the GBP AUD rate gradually drift downwards through the 2.00 level, eventually breaking to a multi-decade low of 1.4760 in July, 2011. 1.4760 remains a strong level of ‘support’ for GBP AUD.

This low was strongly rejected, signalling a key reversal, as investors began to scale back on riskier assets, fearing that the Eurozone’s debt crisis was set to escalate. This saw the GBP AUD rate improve to 1.6390 by the second week of August, 2011.

1.6390 remains as an 8-month high on GBP AUD, making it a strong ‘resistance level’ in the market and a near-term target for the pair, if there is further uncertainty emanating from the Eurozone.

Looking further ahead, if Europe’s debt crisis does escalate and begins to spread to other peripheral nations, then a return to the 1.70-1.82 range which GBP AUD occupied between October 2009 and September 2010, is likely.

An alternative scenario which could trigger a return to the 1.70-1.82 range is further interest rate cuts by the Reserve Bank of Australia. The RBA cut their interest rate from 4.75% to 4.50% earlier this month. This was the first time Australia’s Central bank had cut rates since the Spring of 2009.

The surprise cut in Australian interest rates made the Australian Dollar a less attractive prospect for institutional investors to hold. However, the minutes of November’s RBA meeting, released earlier today, suggest that further cuts in domestic interest rates are unlikely in the near-term.

The alternative scenario would see Eurozone leaders show strong leadership and global economic indicators improve, making a revisiting of the 1.4760 support level likely.

A break below 1.4760 would send out a highly negative signal for GBP AUD, effectively pushing the pair into free-fall as it sinks to levels that it has not traded at for over two decades.

For Sterling to Australian Dollar transfers or live AUD GBP exchange rates please see the Currency News website

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