GBP/AUD to slide below 1.78 – Westpac

FXStreet reports that GBP/AUD is trading near daily lows around 1.80 and economists at Westpac expect the pair to slip below the 1.78 mark though some strength is expected in the short-term due to the aussie underperform on equity pullbacks.

“The consensus forecast is for Australian GDP to contract -4% over 2020, versus -8.5% in the UK. Both the RBA and BoE are pursuing very expansionary monetary policy (BoE somewhat looser) and fiscal support is substantial. In Q2, Australia’s fiscal boost was larger than the UK’s but the UK is planning fresh support as Australia looks to trim its spending.” 

“Australia’s C/A position (surplus) is much more supportive than the UK’s (deficit), helping AUD against GBP. Potential wobbles over Brexit negotiations also open up risks for GBP/AUD to slip below our 1.78-1.79 end-Sep baseline.”

“Nearer-term, however, the Aussie looks quite stretched and is pricing in quite an upbeat equity outlook. AUD is likely to keep underperforming on any equity pullbacks, which could extend as far as GBP/AUD 1.8450-1.8520. This would be an attractive area to sell on a multiweek/month outlook.”