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- AUD retreats after failing to overcome key average above 0.70.

- Commerzbank becomes a short-seller again, joining Westpac.

- AUD/USD woes place tentative floor beneath GBP/AUD rate.

The Australian Dollar has failed to overcome a key moving-average and is now likely to beat a retreat from six-week highs struck at the beginning of June according to analysts at Commerzbank, which could help support the Pound-to-Australian-Dollar rate.

Australia's Dollar received a new lease of life at the start of the new month when the Reserve Bank of Australia (RBA) neglected after its June interest rate meeting to validate market bets that it would cut Aussie borrowing costs to another record low before the curtain closes on 2019.

The Antipodean unit was buoyed further last week when U.S. data incited a tidal wave of wagers that the Federal Reserve would cut its own interest rate on multiple occasions in 2019, although the the tailwind provided to the AUD/USD rate was not enough for it to overcome the 55-day moving average.

"AUD/USD has recently rallied to and failed just ahead of the 55 day ma at .7023 and the April peak at .7069 and we suspect that the near term correction higher is over. We have exited our long positions and reinstated short positions," says Karen Jones, head of technical analysis at Commerzbank.

Above: Commerzbank chart showing AUD/USD rate and technical indicators.

The AUD/USD rate's rejection from the 0.7023 moving-average has come at the end of a month-long period of losses for Pound Sterling and at a time when the British currency has been enjoying a few days of relative stability, which has helped put a floor beneath the Pound-to-Aussie rate.

Commerzbank's Jones is now betting on fresh declines for AUD/USD after having previously bought the currency when it was trading around 0.6950, which was close to its lowest levels since the immediate aftermath of the global financial crisis.

"It should now head lower to initial support at .6941, the 27th May high and .6898, the 30th May low ahead of the .6865 recent lows. A fall and daily chart close below the .6857 78.6% Fibonacci retracement would signal a further bearish phase and target the .6738 December 2019 low," Jones writes, in a note to clients Tuesday.

Above: Pound Sterling performance Vs G10 rivals over the last month. Source: Pound Sterling Live.

The AUD/USD rate has been under pressure for much of the last year while Pound Sterling, despite periodic bouts of weakness, had enjoyed ten months of trading within a relatively tight range against the U.S. Dollar.

That price action helped drive a steady year-long climb by the Pound-to-Australian-Dollar rate, which reflects a combination of movements in both currencies relative to the U.S. Dollar, although the rug was pulled out from under Sterling in May when Prime Minister Theresa May announced her resignation.

Political uncertainty in Westminster and resulting fears over a 'no deal' Brexit drove the British currency sharply lower against all its G10 rivals last month but the pending retreat by the Aussie is now putting a floor beneath the Pound-to-Australian-Dollar rate.

Above: AUD/USD rate at 4-hour intervals alongside GBP/AUD rate (light blue, left axis).

A Sterling recovery could soon follow if Westpac, one Australia's largest lenders, is right in its forecasts for the Antipodean currency through the end of 2019. Like Jones at Commerzbank, Westpac is looking for a resumption of the selling pressures that already drove the AUD/USD rate down 8.5% in the last year.

"We see the A$ as being capped by 0.70 near term being the midpoint of our fair value band on the basis that offshore risks are rising. In this environment, with iron ore feeling like it has peaked as Australian supply has recovered, the A$ should underperform," says Sean Callow, a strategist at Westpac. "The slide in US yields helps limit downside on AUD/USD but we still see probes of 0.7000 failing, with a return to the 0.68 handle not far away."

Westpac's forecasts for the AUD/USD rate suggest it will fall all the way to the 0.66 level by the end of December, although the bank is targeting a move down to 0.68 in a trade recommendation sent to institutional clients last week.

The bank forecasts the Pound-to-Australian-Dollar rate will rise to 1.92 by year-end, from 1.82 on Tusday, which is based on the expectation of more losses hitting the AUD/USD rate while the GBP/USD rate ends the year roughly around its Thursday level of 1.27.

Above: AUD/USD rate at daily intervals alongside GBP/AUD rate (light blue, left axis).

Much of the anticipated Aussie weakness is the result of an increasingly dire outlook for Reserve Bank of Australia (RBA) interest rates. The RBA cut its cash rate to a new record low of 1.25% this month but financial markets are betting it will go much further than that before the year is out.

"AUD’s domestic woes seem set to persist. While business and consumer sentiment surveys might improve post-election, we look for the unemployment rate to remain at 5.2% in May, leaving the RBA pondering how much more it needs to deliver," Callow says.

The RBA cash rate implied by the overnight-index-swap market suggests investors currently expect at least one more rate cut, taking the cash rate down to 1%, this year. That's already baked into the price of the Aussie.

However, Westpac forecasts the RBA will actually rates on two more occasions this year, with the next likely reduction coming in August and being followed by another in November. That level of cuts is not yet priced into the Aussie.

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