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- Potential for 4-year highs to be achieved in 2019

- Recovery predicated on "wholesale" GBP bullishness

- AUD/USD a '0.70-75 cent' currency play

Foreign exchange strategists at NAB - the Australian lender - have updated their forecasts for the Australian Dollar for 2019 and show the Pound should climb back towards 2.0, levels last seen in 2015.

NAB's key message on the Australian Dollar for coming months is the currency should ultimately remain stable but there remain "lots of event risk ahead," and they look for the near-term fortunes of the currency, "to be governed to a large extent by what is hefty upcoming calendar of domestic and international event risk."

The progress or otherwise on U.S.-China trade talks will be key, particularly the expected visit of China's Vice Premier Liu to Washington at the end of January.

Liu is to meet his U.S. counterparts in Washington next week as the two sides work to resolve their trade disagreements by March 1, when a 90-day truce is due to expire, allowing U.S. import duties on Chinese goods to increase sharply.

"We hold the view progress will be made, since Presidents Trump and Xi are doubly incentivised to strike an early deal given the recent ill- health of the US stock market and current concerns about the health of the Chinese economy," say NAB in a quarterly currency strategy briefing to clients.

Domestically, NAB are watching this week’s labour force survey and then the Q4 CPI numbers on 30th January ahead of the Reserve Bank of Australia’s first meeting of the year on February 5th and updated forecasts in the SoMP on the 8th.

"If CPI in particular is very soft and the RBA knocks down its growth forecast more than trivially, AUD will suffer. The counter would be very positive news on Sino-US trade," say NAB.

Australian Dollar Forecasts for 2019

This translates into a Pound-to-Australian Dollar exchange rate (GBP/AUD) of 1.8868, 2.0, and 1.96 for the respective quarterly timeframes.

This represents a move to GBP/AUD's highest levels since 2015.

The primary driver behind the GBP/AUD advance will be the return of Pound Sterling strength, with strategists at NAB believing the "tail risks" of a disorderly Brexit are now fading.

"We can say downside risks remain but they are diminishing to the point where we suspect financial markets are not far from taking a wholesale more bullish view on GBP," say NAB.

Meanwhile, forecasts for the Australian Dollar against the Euro see 0.61 for end-March, 0.59 for end-June, 0.61 for end-September and 0.61 for year-end.

AUD/USD a '0.70-75 cent' currency:

"What we can say is that AUD/USD has traded convincingly below 0.70 for the third time inside 5 years (September 2015, January 2016 and now January 2019) and each time failed to spend very much time there," note NAB, whose views on AUD/USD appear to be a technical one.

"This leaves us as comfortable as we can be that AUD/USD will remain for the most part a ‘0.70-75 cent’ currency for many months to come, albeit we need to allow for excursions either side of the range," say NAB.

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