With contracts for difference (CFDs) being such a popular financial instrument in both the UK and Australia, it is no surprise that the currencies of both nations are also favourites when it comes to CFD trades on forex markets. These countries are currently dealing with several macro-economic factors that are influencing exchange rates. Evaluating what this might mean for future price fluctuations will be of interest to forex CFD traders, whether they use an AUD/GBP pair or take an interest in either currency separately.
Mixed signals
Currently, the GBP/AUD pair is presenting a mixed set of technical signals. Although the overall outlook might be neutral, Brexit is still the main influencing factor for the pound, while the Australian dollar is talking cues from Chinese economic data.
At the start of the new trading week, the pound-to-Australian dollar rate began trading at 1.7959 following a rise of 0.8% the previous week. The pound is strengthening as investors are choosing to believe that the probability of a hard Brexit is becoming less likely, Meanwhile, the Australian dollar lost ground as fears surrounding the growth of China’s economy grew.
In terms of what this means for monthly, weekly and daily data for GBP/AUD, the monthly outlook is bearish, with the trading pair hitting resistance on a 50-month moving average level. This has held solid since March 2018.
Weekly charts suggest that GBP/AUD is continuing to rise in an ascending channel, following a trend that started after 2016-17 lows. As this should continue, it is actually a more bullish forecast. Daily charts take the issue into even more confusing territory by suggesting that the short-term trend is directionless because the pair’s movement seems to be somewhat random. December lows saw a temporary rise later in the month before a “shooting star” candlestick pattern moved back down to the levels of the 50-day moving average.
All in all, the data offers a confusing picture that allows for several interpretations, each of which could be as valid as another.
Predicting the pound
When it comes to looking out for factors that will influencers the pound, the main one continues to be the Brexit saga, which features in numerous news stories around the world.
A disorderly Brexit will push confidence in the pound lower, but any signs of an agreed settlement between the UK and the EU will give investors confidence in the currency, which has been happening for quite some time now. One problem is that each side in the debate for a hard, soft or no Brexit continues to use the information to its own ends, This means that hard data is difficult to come by. One new indicator may be the next round of UK labour market data, which will provide figures for the number of new jobs created, the unemployment rate and the average earnings.
In each of these categories, different results will lead to changes in support for the pound, and if a picture of decline builds, then it is almost certain to weigh heavily on the currency.
The Australian dollar
Short-term forecasts and predictions in the value of the AUD will most likely revolve around Chinese Q4 GDP data that comes out this week. If forecasts of a slowdown to 6.4% are correct, then the existing trend will continue, meaning that slowdown fears will heighten. The Australian dollar could suffer as a result.
The large volume of exports from Australia to China tie the fortunes of the AUD to the trading relationship between the two countries. Therefore, any significant movements in the Chinese economy or a slowdown in China can mean a devaluation for the AUD. Beijing’s recent decision to undertake an emergency stimulus for the economy worth $83bn stoked fears of a slowdown, and analysts are eagerly awaiting new figures to see which effects the Chinese government’s moves may have had, if any.
XM.com Investment Research Analyst Raffi Boyadjian said: “Lower-than-expected figures could send markets into a tailspin. However, any fallout would probably be limited given the series of stimulus measures announced recently by Chinese authorities.”
Boyadijan added: “The Australian dollar is likely to bear the brunt of any data miss among the major currencies, as the Aussie is often considered a liquid proxy for the Chinese yuan.”
Chinese industrial production figures and unemployment rate data will also feed into AUD forecasts for forex markets. Australian employment data will come out later in January, and it is of interest because it is one of the strongest elements of the Australian economy.
CFD forex trades
Forecasts play a big part in forex trading decisions of any kind, but for CFDs, the short-term predictions often outweigh the long-term ones in usefulness. Although some CFD traders can take a wider view of forex markets into account regarding how monthly data and 50-month moving average levels come into play, for those interested in forex pairs, the short-term volatility has appeal.
While Brexit continues to confuse investors and China’s economy remains unsettled, forecasts for the GBP and AUD and their relationships with other major currencies heavily rely on geopolitical macro-economic events.