GBP Fundamental View
Disappointing UK GDP and BoE Rate Cut Will Lead More Selling Pressure on GBP
During today’s European session, GBP remains the session laggard as disappointing GDP data adds to the already bearish sentiment bias following Sunday’s dovish comments from BoE’s Vlieghe.
GDP for November misused all expectations on a month-over-month basis at -0.3% against consensus and prior of 0.0%; and a minimum expectation of -0.1% from Heteronomous and NatWest Markets.
GDP Y/Y for November printed in-line with expectations at 0.6% while GDP 3M/3M beat expectations at 0.1% versus consensus of -0.1%.
The ONS summarized the report by stating that “Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012”.
The overall disappointing report and recent dovish BoE comments have resulted in a significant upsurge in rate cut expectations through the session. The market is now pricing in a 49% probability of a 25bp rate cut from the BoE on January 30th.
As rate cut bets continue to increase, we expect GBP to remain to sell pressured across the board.
AUD Fundamental View
The currency continues to be driven by developments between the US and China on trade and Australia’s monetary policy outlook.
Progress between the US and China on securing a phase one deal in principle is certainly a positive factor for Australia, given its dependence on China for trade. The deal is expected to be signed this week with China’s Vice Premier Liu He traveling to Washington.
Expect any further updates on US/China relations to continue moving AUD.
Regarding Australia’s monetary policy outlook, the RBA kept policy on hold at their December meeting, providing an overall upbeat tone which many suggested signaled a shift to data dependence regarding future policy changes. However, December’s meeting minutes provided a more downbeat and dovish tone, making it clear that further easing is likely if incomes remain subdued as, at present, wage growth is not fast enough to reach inflation or consumption goals.
The ongoing bushfires which continue to ravage Australia pose a significant risk to Australia’s economic and monetary policy outlook. Alongside the physical destruction the fires have caused, the fires are also expected to have had a detriment impact on employment, consumption, and tourism.
Rate cut expectations have since declined following Australia’s impressive November Retail Sales report last week. However, as the report’s positive print was largely a result of seasonal factors, the risks to Australia’s economic and monetary policy outlook remain firmly to the downside. At present, markets are pricing in a 47% chance of a February rate cut.
Although the market is no longer leaning towards a February rate cut, significant risks still remain and data between now and their February meeting will be key.
If data holds firm, the RBA will likely decide to hold for the time being. However, with that said, risks are clearly tilted to the downside given the ongoing bushfires and overall weak start from economic data in Q4 2019.
All-in-all, the market continues to expect further easing at some point this year, along with strong expectations for quantitative easing once the RBA hit they’re lower bound of 0.25%.
The market’s global economic outlook also remains key for AUD. Keep a close eye on any US/China developments, especially those regarding the outlook for phase two once phase one is signed, and relations in general between the two nations.
GBP/AUD Technical View
Right now GBP/AUD holding the ground at the bottom of the rising channel. If GBP/AUD breaks and stable below rising channel we will see more selling pressure on GBP/AUD. And the most possibility that may happen.
Initial support identified 1.8750 If 1.2950 breaks the next target 1.8650. And final target 1.8430 to 1.8120
On the other hand, if we see some corrective bounce from the rising channel, initially GBP/USD may test 1.8900/1.8930. If 1.8930 breaks above the next target is 1.9165. From a fundamental perspective, it is hard to visit 1.9165. And final target to the upside is 1.9500 again