GBPAUD: Near term momentum still with sterling – Westpac

The Bank of England’s new policy preference to raise its official interest rate in coming months prompted a sharp rally in the pound against all major currencies, including the Australian dollar, explains Sean Callow, Research Analyst at Westpac.

Key Quotes

“In coming weeks, expectations of higher UK rates and debate over the pace of tightening should maintain a degree of support for sterling. But with a 2 November BoE hike already almost 70% priced in, there is a limit to further GBP outperformance. We also continue to view Brexit negotiations as a weight on the pound multi-month, with a distinct lack of progress to date.”

“AUD faces its own headwinds in the form of hefty long speculative positioning and faltering commodity prices. But support comes from the RBA’s optimism on Australia’s growth prospects and resilient global risk appetite.”

“Overall, further pricing for BoE rate increases could see GBP/AUD extend to around 1.72-1.73, AUD/GBP to 0.58, but then return to recent ranges.”