GBP/AUD: The Downside Move May Be Short-lived

Summary:

The GBP/AUD is on its way further downwards even as UK consumer inflation spirals towards 40-year highs in todays data.

The British Pound is losing ground against the commodity-linked Aussie Dollar, even as year-on-year inflation in the UK rose from 9.1% to 9.4%, according to data released by the UK Office for National Statistics.

The headline number exceeded market expectations of 9.3%. On a monthly basis, CPI rose from 0.5% in May to 0.8% in June, with a rise in energy and food prices accounting for most of this increase. However, the core inflation figure fell from 5.9% to 5.8%, as analysts had predicted.

So why is the GBP/AUD price falling?

Despite inflation surging to 40-year highs, with food and grocery inflation just short of double-digit levels, the Australian Dollar retains the bullish bias in the GBP/AUD pairing. But the speech by RBA Governor Philip Lowe, which showcased a hawkish stance from the Reserve Bank of Australia, continues to carry the Aussie Dollar well into the New York session.

Yesterday, the RBA minutes showed clearly that the bank intends to tighten more. In contrast, the BoE has shown some reluctance in pushing for aggressive rate increases, preferring to adopt a “wait and see” attitude to the situation. However, traders should watch for signs of the downward pressure fading, as the BoE may be forced to do something more radical in its next meeting.

GBP/AUD Outlook

The intraday decline is now targeting the lower border of the rectangle at the 1.72957 price mark. The bears would be seeking a breakdown of this pivot (2 June low) for the chance to target the 1.71928 price mark, where the lows of 5 April and 5 May 2022 are located. Below this level, you would need to go back to 7 July 2017 and 11 January 2018 for the last time that price touched the immediate target below this price mark, which is at 1.71109.

The 18 September 2018 high at 1.70059 is a psychological support level and additional southbound target if the price dips further. On the other hand, the bulls would be looking for a bounce on the rectangle, targeting 1.74664 initially before 1.76194 (10 June high, 4 July low) enters the mix as another upside target.

Clearance of the 1.78134 resistance takes the price action out of the range, allowing the bulls to aim for the 1.80361 barrier. This barrier only becomes visible if the price activity exceeds the pitstop at 1.79287 (4 March 2022 low).