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The RBA dominates the week ahead for the Australian Dollar.
The Pound to Australian Dollar exchange rate (GBP/AUD) rises at the start of the new week, with further gains being forecast.
However, as the below chart shows, any advances from here are likely to be limited by the resistance that lies just above 2.10:
The chart shows the outlines of a range that has been intact since early April, and its outline has shown some useful predictive powers.
For instance, our Week Ahead Forecast issued three weeks back - on June 15 - saw us draw the blue line annotations. The message was that a pullback would find support around 2.0676, from where it would gain again.
However, the timing was a little off, with the speed of the move being a lot quicker than anticipated; nevertheless, the sentiment was correct: that the range would be respected.
Fast-forward to July 07, and we are sticking to that range trade, which means a rise up to 2.1035 is the preferred assumption.
From there, a retreat back towards the midway pivot (~2.0850) then becomes likely, ahead of a retreat to 2.0670-2.06.
The pullback could, however, occur sooner if the Reserve Bank of Australia's Tuesday policy decision turns out to be more 'hawkish' than expected, i.e. the central bank leaves interest rates unchanged and signals it will maintain a prudish approach to further cuts.
"The market is excessively rich in pricing a terminal cash rate below 3%," says Bank of America. "We see a strong case for the RBA to adopt a wait-and-see approach, rather than validate market pricing through back-to-back cuts."
The market is currently full priced for an interest rate cut, which means that any decision to hold rates would come as a surprise, one that would boost the Aussie Dollar.
Market implied odds for a July rate cut grew in late June after Aussie inflation dropped from 2.4% year-on-year to 2.1% in May, undershooting the consensus forecast of a fall of 2.3%. However, the trimmed mean measure of Australian inflation, which is what preoccupies the RBA, remains well above the 2–3% target band and is not expected to return to target until mid-2027.
Although there is scope for a surprise, for now we have to lean with market pricing and anticipate a cut. This would leave the AUD relatively listless, especially if RBA Governor Michelle Bullock maintains recent guidance.
Either way, we don't think post-RBA price action will be long-lasting and therefore won't shift the GBP/AUD outlook in a material fashion.
U.S. President Trump is ratcheting up the heat on trade partners again. Official White House Photo by Abe McNatt.
Instead, it falls to global drivers to guide the exchange rate.
The new week starts with AUD weakness amidst a rise in trade tensions, with U.S. President Donald Trump threatening a 10% tariff surcharge on nations that align with the China-led BRICS bloc.
BRICS members meet in Brazil this week, and Trump says the tariff would be designed to counter perceived "Anti-American policies" pursued by nations that include Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates.
Another 30 nations are said to have expressed interest in participating.
Back to the Aussie Dollar: what happens to BRICS members doesn't really matter all that much, but the bigger picture here is that Trump is back on the tariff war path, and this is what matters for the currency.
Investors had hoped that we were reaching a tariff end game, with the U.S. to start telling nations what their tariff rates would be, starting Monday. August 01 will be when these tariffs come into play.
However, Trump is showing that he will continue to wield the threat of tariffs as a geopolitical tool ensuring there will probably be no end to the tariff-driven headlines as long as he occupies the White House.
Global markets are feeling unsettled as a result, and this is directly weighing on the sentiment-sensitive Australian Dollar.
So, this can inform near-term weakness in the Aussie, even if the overall impact of tariff headlines is increasingly less impactful to markets.