GBP/AUD Slumps After UK Mini-Budget Reveals Huge Tax Cuts

The GBP/AUD has resumed the slide after the budget speech of the new Chancellor of the Exchequer, Kwasi Kwarteng. UK gilts and the British Pound sold off heavily after Mr Kwarteng revealed the most extensive tax cuts since 1972. The announcement followed yesterday’s 50 basis points hike by the Bank of England, in a move which only briefly supported the Pound and created rally-selling opportunities.

The mini-budget calls for caps to be applied on bankers’ bonuses and extensive tax cuts. These cuts also include the reversal of the national insurance rise and the axing of corporate tax hikes in a plan estimated to cost £45 billion annually by 2026. Some of the cuts have been brought forward a year earlier than planned as the new UK government moves to save businesses from collapse under the weight of rising energy bills.

The mini-budget has the market reeling badly, with the British Pound losing ground against its peers. The GBP/AUD is down 1.51% on the day, even as market watchers have begun to price in UK interest rates as high as 5% by May 2023. 

GBP/AUD Forecast

The violation of the 1.68755 support must be followed by a 3% penetration close below this pivot to confirm the breakdown. This opens the door for the bears to march toward the 1.67266 support (12 August 2016 low and 4 August 2017 high). The 1.65595 support (28 March 2017/16 August 2017 highs) enters the mix as an additional harvest point for the bears.

Below this level, 1.64111 forms an additional pivot, being the site of the 15 November 2016/4 August 2017 lows. Attainment of the latter completes the measured move from the breakdown of the rectangle pattern. 

On the other hand, the recovery on the pair follows a break of the 1.70319 resistance (2 September high). This breakout move will allow the bulls to aim for 1.71785 (5 April/5 May 2022 lows). Above this level, a further march to the north brings 1.72957 into the mix, as this location forms the lower border of the resolved triangle. Additional northbound targets are at 1.73672, 1.74664 (29 April low and 8 August high) and 1.76194 (9 June and 3 August high).

GBP/AUD: Daily Chart