Both the Reserve Bank of Australia and the Bank of England cut rates this week. However, there is a clear difference in the performance of the respective currencies. Sterling’s move was a text book response, but the Aussie confounded expectations by rising. Naturally, this has traders watching GBP/AUD closely.
The RBA cut rates on Tuesday from 1.75% to 1.50%. The AUD fell against the USD by about 40 points, before rallying back in the next few hours to finish the session ABOVE the point at which the announcement occurred. Many point to the more stable commodity environment as a driver of this strength, with a particular focus on resurgent iron ore prices. The AUD moved higher in Asia Pacific trading on Friday, despite an RBA statement on monetary policy that displays an easing bias.
In contrast, when the BoE cut on Thursday GBP dropped more than two big figures against the USD, and stayed down. Although the cut was from 0.5% to 0.25%, its effectiveness may relate to the fact it is the first cut from the BoE in more than seven years.
Whatever the causes, the price action points to strength in AUD and weakness in GBP, which could see further falls in GBP/AUD over the coming sessions.
The chart points to a K.I.S.S. trade in the pair. The 1.7250 level is a low from 2014. After July’s false break, GBP/AUD is now testing the level again. Selling at 1.7030, with a stop loss at 1.7085, the target is 1.6675, just above the October 2013 support at 1.6650.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.