GBP/AUD: Geopolitics, Interest Rates to Decide Direction

The GBP/AUD pair has been in a consolidation phase since April 2022, with the price trading between 1.71928 and 1.78134. This follows a period of downtrending price action which started from the double top of 31 January and 4 February 2022 until the end of March 2022. This consolidation period could end soon as the pair faces a host of fundamental catalysts this week.

The first comes from the Reserve Bank of Australia, where RBA Governor Lowe is expected to speak on monetary policy at an event co-hosted by the American Chamber of Commerce and the Australia/New Zealand Banking Group on Tuesday. The release of the minutes of the last monetary policy committee meeting follows soon after.

On Wednesday, the consumer price index in the UK will be released. Monthly, the data set is expected to make a higher print from the previous month’s 9.0% to 9.1%. The last catalyst for the week comes from the RBA Governor, who will be in Zurich to participate in a panel discussion at the Global Monetary Policy Challenges forum.

He had earlier flown a kite about rates needing to go up to 2.5% to combat inflation. This indicates a 175bps hike between now and December, which could outpace the speed of the BoE’s rate hikes. In terms of monetary policy, the Bank of England is still relatively dovish, only making a 25bps adjustment last week.

In contrast, the RBA could embark on a more aggressive rate hike pathway. Geopolitics will also play a part in the Aussie Dollar’s evolution. Australia has primarily benefitted from the Ukraine conflict, bridging the supply gap of many assets that cannot be exported from the conflict zone. The country added 10 billion Aussie Dollars to its trade balance.

The only concern right now is China, with lockdowns being deployed in a manner that suggests that Beijing is struggling to devise a clear plan to achieve its zero-COVID policy. Being China’s primary supplier of commodities, a slowdown in manufacturing from lockdowns could be a threat down the road.

GBP/AUD Outlook

The emerging double bottom pattern on the daily chart is yet to achieve confirmation, following the rejection of the price action at the 1.76194 neckline. This rejection move has fallen short of the 1.74664 support level (2 June and 7 June highs). A break of the 1.76194 neckline is required to confirm the pattern.

This sets up a potential measured move that must break the 1.78134 resistance to attain completion at 1.79287 (9 March low). Above this level, an extension of the measured move targets 1.80361, leaving the 15 March 2022 high at 1.81761 as an additional northbound target.

On the flip side, an extension of Monday’s rejection targets 1.74664. If the bears break down this support, the 1.73928 price mark (8 June 2022 low) becomes the next milestone. 1.72957 and 1.71928 (5 April and 5 May 2022 lows) become the additional southbound targets if the bulls fail to defend 1.73928.

GBP/AUD: Daily Chart