Australian Exchange Investment Consulting: Sterling is bullish against the Australian dollar in the short term, and "super bearish" in the medium term!

In the first half of this year, the UK economy maintained positive growth, but it was close to zero, and the magnitude of interest rate hikes since December 2021 indicates that the risk of a recession is high. In Australia, weaker inflation and modest wage growth in the labour market so far have been among the factors that have helped maintain the cash rate at 4.1%, but wage settlements are on the rise and the outlook for commodity prices may also improve with an eventual recovery in Asian growth, which could lead to a recovery in Aussie interest rates, which in turn would have an adverse impact on GBP/Aussie.

In early August, the pound hit its highest level against the Australian dollar in more than three years, but earlier this week, this increasingly speculative rally was tempered, and one trader said that bets that the uptrend would sooner or later unravel would pay off.

This week,Sterling suffered its biggest intraday drop since early July after business surveys poured cold water on Britain's economic outlook and interrupted a sharp rise against the Australian dollar in 2023.Recently, a large number of speculative bets on the exchange rate have been accompanied by the GBP/AUD.

"You might want to short the GBP/AUD because extreme positions coincide with extreme movements in the GBP/AUD price," says Brent Donnelly, chief executive of Spectra Markets and a veteran currency trader who has spent his career between hedge funds and global banks such as HSBC and Nomura.He wrote in Tuesday's AM/FX daily macro newsletter: "But the lag is so long that you don't see much signal unless you look at it for a year or so.After a year, it was very bearish。”

The pound was still up more than 15 per cent against the Australian dollar on Thursday after a strong rebound in sterling and a poor relative performance against the Australian dollar, which was weighed down by multiple headwinds including commodity prices and the Reserve Bank of Australia's stance on interest rates.

Joseph Capurso, head of international economics at Commonwealth Bank of Australia, said: "Commodity prices have weighed on the Australian dollar against the dollar and the New Zealand dollar against the dollar. Asian countries are the largest markets for Australian and New Zealand commodity (and services) exports. The fall in commodity prices is largely due to the stagnation of the economy there."

So far, Asia's recovery from epidemic restrictions that were phased out at the end of last year has dashed high expectations for financial marekts and dampened global demand for commodities, just as central bank monetary policy has increasingly hurt the outlook for the rest of the world.

Australia's international trade relations with Asian countries, combined with interest rate differentials between Australia and other developed economies, have put the Australian dollar at a disadvantage against other currencies after the Reserve Bank of Australia repeatedly said its interest rate cycle was coming to an end.

Sean Callow, strategist at Westpac, said: "The market believes the RBA cash rate, currently at 4.10 per cent, will remain unchanged in September and peak at 4.20 per cent in March."

Interest rates on sterling and other currencies have reached their highest levels since before the 2008 financial crisis, as the Reserve Bank of Australia has placed a high priority on maintaining post-epidemic job growth and keeping the local economy on track. The Reserve Bank of Australia is trying to guide inflation back to its 2.5% target.

Alex Loo, strategist at TD Securities, who advocated buying the Aussie/dollar on Wednesday, said: "While our macro team's latest forecast is that the RBA is done raising rates, they do note the risk of another 25 basis point hike before the end of the year. In contrast, the Aussie is one of the cheapest currencies on our dashboard."

Weaker inflation and modest wage growth in the labor market so far have been among the factors that have helped maintain the cash rate at 4.1 percent, butWage settlements are on the rise, and the outlook for commodity prices may also improve with an eventual recovery in Asian economic growth。

These examples could all lead to a recovery in interest rates for the Australian dollar, which in turn would have an adverse impact on the pound against the Australian dollar，Although the latter also faces risks from the pound, including a bleak outlook for the UK economy and the maturation of the Bank of England's interest rate cycle。

"We expect the AUD/GBP to maintain its decline for the rest of the year and remain strong around 0.52," said Capurso at the Commonwealth Bank of Australia. "The prospect of a rate hike by the Bank of England will continue to weigh on the AUD/GBP."

He added: "We think market expectations of a rate hike by the Bank of England are too aggressive. While we expect the BoE rate hike to slow, the positive impact on the Aussie/GBP is likely to be offset by recession expectations in the US, UK and several other major economies."

The Bank of England's current interest rate is the third highest in the world, and the UK has long been one of the slowest-growing G10 economies, making it somewhat of a canary in the economic coal mine and another reason why the pound may already be on an upward trend against the Australian dollar.

Therefore, Wednesday's S & P Global survey results caused an uproar.The survey results show that the continued slump in UK manufacturing deepened in August, while activity in the crucial services sector slowed enough to bring it close to recession。

Neil Wilson, chief market analyst at Finalto Trading and Markets.com, said: "At the same time, Sage reported a fifth decline in sales for small businesses in the UK."

In the first half of this year, the UK economy maintained positive growth, but it was close to zero, and the magnitude of interest rate hikes since December 2021 indicates that the risk of a recession is high.

GBP/AUD daily chart

At 16:46 on August 25, Beijing time, the pound was trading at 1.9523/96 against the Australian dollar.