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Sterling – Australian Quarterly Forecast April – June 2016


Australia|Currency Insights|Technical Research
Published: Wednesday 02 March 2016
Economic data is taking a back seat and will continue to do so where the Pound is concerned. The EU membership vote will take place in the UK on 23rd June and the market is not confident that the UK will vote to stay in the EU based on how close the polls are at the moment. This uncertainty is only adding to the Pounds woes and we’re seeing evidence of a slowing UK economy triggered by a fall in business activity – business putting off large scale investment into the UK until the vote has happened. Investors and funds alike are trimming their exposure to a potential “Brexit” (Britain leaving the EU) as businesses are taking out large GBP contracts to hedge against possible collapse in the Pound and the net effect is a weakening Sterling.
 

GBPAUD currency pair has broken the longer term uptrend that had started in 2013 when prices moved away from the 1.43 record low. Since then the UK economy grew and the Australian mining sector slowed, the exchange rate gained over 50% and topped out just over 2.20 in August last year. The exchange rate also broke the uptrend in February and has fallen to 1.93 which is a 38.2% retracement of the move from 1.43 to 2.20.
 
Forecasting the fortunes of the Pound over the next few months is going to be difficult. In simple terms the Pound may continue to weaken if polls indicate both sides of the coin and until the final ballots are in, the Pound will continue to remain under pressure for the foreseeable future.
 
The vote is unprecedented; the outcome may also trigger unprecedented shockwaves to the Pound and the immediate impact to the UK economy.
 
If polls indicate a growing probability of a comfortable win for the ‘In the EU camp,’ then over the coming weeks in the run up to June 23rd, the Pound will find support and should stabilise against major currencies.
 
We suggest you to hedge your bets and trade a portion of funds now if you have them available. Alternatively we suggest you fix the rate on your GBPAUD requirements now if you’re wanting to lock the rate in even if you haven’t got all of the funds available.
 
With a forward contract you can fix the exchange rate with a 10% deposit and the rate can be fixed for up to 2 years – so if you’ve got funds tied up in a house and you’ve exchanged but you’re not completing for a few months, you can still fix the rate on the proceeds of the house sale.  Speak to your Halo consultant for more information about forward contracts.
 
In planning ahead of the vote in June, you may be of the opinion that the UK will vote to stay in the EU and therefore holding off trading would be the best strategy. You may also conversely believe that the UK will vote in favour of leaving in which case you’ll want to get your funds converted sooner rather than later. For those of you that aren’t sure which way the voting’s going to go we also suggest you to hedge your bets and trade a portion of your funds sooner rather than later.
 


Technical analysis by Alastair Sweetman

 

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