GBPAUD Soars on RBA Rate Cut, Could Target 1.85

Today, the British pound was soaring vs. the Australian Dollar (GBPAUD), as the Australian central bank cut interest rates by 25-bps to 0.75%. Economists projected the cut, but the rates markets were only giving it an 80% probability of the RBA following through and that explains why the Australian Dollar (AUD) lost so much against the British Pound.

As for the GBPAUD pair, the short-term trend is now bullish once more after trading lower from the September 20 high of 1.8496. The short-term trend is now aligned with the longer-term trend that has been upwards since July when the price bottomed out from the 1.7561 level. As both the short-term and long-term trend is bullish, I suspect the GBPAUD might be able to reach the September 20 high of 1.8496. Traders that are not already long the pair will probably wait for a corrective decline to the 38.2% Fibonacci correction level at 1.8275. The Fibonacci level is based on the rise from today’s low of 1.8133 to the current high at 1.8366. If the price was to extend below today’s low the GBPAUD pair should be able to reach the next support level, the September 15 low of 1.8051.

GBPAUD Daily Chart

GBPAUD Daily Chart

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RBA Could Cut More, While Brexit is Delayed

As for the longer-term outlook, the trend is upwards in the pair, and for now, the markets are not focused on Brexit risks, as it looks like the UK PM is by the Benn Act forced to ask for an extension if a deal between the UK and EU is not reached by October 19.

In Australia, the RBA is concerned about the US-China trade wars and how it may affect the export-oriented Australian economy. Higher US tariffs are due on $250 billion of Chinese goods on October 15.  Another reason for keeping the door open for further interest rates is that wage growth is not strong enough despite the low unemployment rate, and they think the unemployment rate could be lower before inflation feeds through via wage growth. A third, reason for keeping the door open for rate cuts is that they think that the labor market will underperform in the months ahead, that coupled with wage growth being low, could result in a lower Australian inflation rate in the months ahead. Overall, the RBA is probably due to cut rate again in the months ahead, and this should keep the Australian dollar under pressure.

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