GBP/AUD is weak but risk-off in Q2 may pullback

By Westpac

Although historically trades below 1.54 are rare, Westpac analysts see fundamentals pushing to even lower levels: “GBP/AUD is very weak by historical standards, with trade below 1.67 only occurring on 10.3% of all trading days since the AUD float in 1983 and closes below 1.54 for just 4.4% of trade”, says Sean Callow, analyst at Westpac. “But fundamentals do argue for levels well below long term averages, especially given Australia’s terms of trade (ratio of export to import prices) is only modestly below the highest levels in over a century”, he adds.

Further BoE dovishness, while the RBA maintained its interest rate at 4.25%. To be noted that Westpac analysts expect the RBA to cut its rate in March.

In conclusion, the GBP/AUD might break below 1.45 soon, but if the risk sentiment degrades in Q2, a pullback to 1.4950-1.5150 is likely, with possible unsustained rallies to 1.5400.

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