This week, our foreign money strategists targeted on the Australia CPI Report (February 2025) for potential high-quality setups on Aussie greenback pairs.
Out of the 4 situation/value outlook discussions this week, one dialogue arguably noticed each fundie & technical arguments triggered to turn into potential candidates for a commerce & threat administration overlay.
Watchlists are value outlook & technique discussions supported by each basic & technical evaluation, a vital step in the direction of making a top quality discretionary commerce thought earlier than engaged on a threat & commerce administration plan.
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GBP/AUD: Tuesday – March 25, 2025
GBP/AUD 1-Hour Foreign exchange Chart by TradingView
On Tuesday, our strategists had their sights set on the Australian CPI report and its potential impression on the Australian greenback. Based mostly on our Occasion Information, expectations had been for headline CPI to rise to 2.6% y/y from 2.5% beforehand, whereas month-to-month inflation indicators from enterprise surveys pointed to easing value pressures, suggesting a attainable draw back shock that might bolster dovish RBA expectations.
With these expectations in thoughts, right here’s what we had been pondering:
The “Aussie Advance” State of affairs:
If CPI got here in hotter than anticipated, we figured it might again the RBA’s wait-and-see stance on charge cuts, which might give the Aussie a raise. We had been eyeing AUD/CHF for potential lengthy performs, particularly if threat sentiment stayed upbeat. The SNB’s comparatively extra dovish tone, together with the franc’s vulnerability to U.S. tariffs and the greenback’s safe-haven pull, made it an excellent matchup.
On the flip aspect, in a risk-off temper, AUD/NZD seemed like a stable lengthy. The RBNZ has been extra open about slicing charges, whereas the RBA’s been a bit extra cautious. On the time, that divergence gave the Aussie an edge.
The “Aussie Avalanche” State of affairs:
If Australia’s inflation information got here in tender, we figured that may ramp up RBA charge minimize expectations and drag on the Aussie. In a risk-on temper, we appreciated the concept of going lengthy GBP/AUD. The BOE’s been comparatively much less dovish, the U.Okay. financial system isn’t as uncovered to U.S. tariffs, and the pair’s been climbing steadily in an ascending channel.
If threat sentiment turned adverse, shorting AUD/JPY seemed like a stable play. The pair’s been stalling across the center of its channel, and the yen tends to learn from anti-USD flows when issues get shaky.
What Really Occurred:
The February CPI report confirmed a cooling in Australian inflation:
- Headline CPI got here in at 2.4% y/y, under each expectations (2.6%) and the earlier studying (2.5%)
- Trimmed imply inflation (the RBA’s most popular core gauge) additionally dipped to 2.7% from 2.8%
- Key contributors to annual inflation included meals and non-alcoholic drinks (up 3.1%), alcohol and tobacco (up 6.7%), and housing prices (up 1.8%)
- Rental costs rose 5.5% yearly, down from 5.8% in January, exhibiting the slowest development since March 2023
- Electrical energy costs fell considerably (-13.2%) due to authorities power rebates
- Automotive gas costs declined 5.5% year-over-year, following a 1.9% drop in January
This end result basically triggered our AUD bearish situations, with the cooling inflation strengthening the case for additional financial easing by the RBA. Markets responded by pricing in a roughly two-thirds likelihood of a charge minimize in Might, following the financial institution’s first discount since 2020 earlier this yr in February.
Market Response:
Wanting on the GBP/AUD chart, we will see that the pair initially discovered resistance close to the mid-channel space across the pivot level (2.0520) earlier than the CPI report. After the weaker-than-expected Australian inflation information, GBP/AUD started to climb, although the transfer shortly reversed after the U.Okay. printed its personal disappointing CPI information that supported additional charge cuts from the BOE.
Fortunately for the lengthy setup, GBP/AUD quickly turned larger following the U.Okay. authorities price range assertion. Although the Workplace for Finances Accountability (OBR) minimize development forecasts and raised borrowing and inflation estimates, Chancellor Reeves introduced a number of insurance policies that might assist stabilize the financial system, together with no tax will increase and investments into building applications. This offered a major increase to the pound.
GBP/AUD examined key technical help across the 61.8% Fibonacci stage and S1 Pivot Level (2.0400), the place patrons stepped in decisively, confirming our technical evaluation. The pair then rallied strongly, breaking by way of the pivot stage (2.0520) and shifting towards R1 (2.0720) after the U.Okay. price range information.
Friday’s U.Okay. retail gross sales information exhibiting a shock 1.0% m/m improve (vs -0.2% anticipated) offered extra help for Sterling, serving to GBP/AUD keep its beneficial properties regardless of broad market threat aversion. The pair completed the week effectively above our initially focused pivot stage.
The Verdict:
So, how’d we do?
Our basic evaluation precisely anticipated AUD weak point on disappointing inflation information, which materialized within the precise numbers. Our technical evaluation additionally accurately recognized the channel construction and key help/resistance areas that influenced value motion.
General, we expect this dialogue “probably” supported a web optimistic end result as each basic and technical triggers aligned effectively. Nevertheless, this setup highlights the significance of correct commerce administration. GBP/AUD initially popped after the Aussie CPI miss, then shortly gave up floor when the U.Okay. launched its personal disappointing inflation numbers and merchants began pricing in weaker development projections.
For merchants who purchased close to the 61.8% Fibonacci and S1 help space and held by way of the chop, persistence paid off. The pair ended up rallying greater than 300 pips on the week’s excessive. Friday’s robust UK retail gross sales report added gas to the hearth, serving to GBP/AUD dangle on to beneficial properties even with some late-week revenue taking.
However merchants who entered lengthy positions after the Australian CPI launch would have wanted persistence and stable threat administration to climate this preliminary volatility. The true catalyst for the sustained rally wasn’t simply the Australian information, however the subsequent U.Okay. price range announcement. This served because the stronger driver that lastly propelled GBP/AUD larger, demonstrating how foreign exchange pairs typically require a number of basic elements aligning earlier than a transparent development emerges.
This sample reminds us that whereas our evaluation of the Australian CPI impression was appropriate, typically the important thing to profitability is adapting to evolving basic catalysts that emerge throughout the commerce.