AUD outlook vs GBP: Aussie underperformance to resume - Westpac

Sean Callow, Research Analyst at Westpac, suggests that the swings in broad US dollar momentum have been the main driver of AUD versus GBP over recent months, with AUD higher beta as usual.

Key Quotes

“Our expectation that the US dollar mostly chops higher in coming months as markets price in more Fed tightening implies sterling outperformance.”

“Relative fundamental developments are less clear for the cross. AUD/USD still looks pricey, with the pair well above our estimates of fair value given yield differentials, commodity prices and increased volatility.”

“But GBP/USD also seems vulnerable multi-week/month. Speculative sterling long positions are very close to highs since 2014, which could see substantial profit-taking on any increase in concerns over Brexit or PM May's leadership or extra BoE caution.”

“Overall, this suggests AUD recoveries run out of steam in the AUD/GBP 0.5700/50 or GBP/AUD 1.74-1.75 area, with an overall bias for sterling appreciation into Q2.”