The pound sterling has outperformed recently as the UK election risk premium has been removed. But Aus dollar sentiment has also improved in line with the RBA’s steady outlook and the iron ore price recovery.

“The 1.90-2.05 range accounts for 8.6% of days since the 1983 AUD float while trade within 2.05-2.20 totals a hefty 19.6% of daily closes,” Sean Callow @ Westpac.

What then does the outlook hold for two currencies that are seemingly enjoying a period of outperformance against their major rivals?

Looking to answer that question is the team at Australia’s Westpac bank who have released a new note to clients on the matter. The central scenario of the analysis sees the GBP/AUD maintaining a rangebound side-ways moving direction before the pound sterling gains the advantage.

As we can see from the below, the British pound has come under a hefty selling pressure in the mid-month session with the gains that took the pair to 1.9749 coming to an abrupt end. The retracement confirms how hard sterling is finding it to find any meaningful traction against the Aussie.

Beware. All quotes in this piece reference the inter-bank spot rate. Your bank transfer will affix a spread at discretion. Independent providers are however able to get you closer to the spot market rate, in some cases this can deliver up to 5% more currency. Find out more.

According to Westpac’s analyst Sean Callow in Sydney the outlook over coming weeks can be explained in simple terms, “into H2 GBP/AUD should meet sellers ahead of 2.00 and find buyers around 1.90, avoiding major range breaks.”

However as the year progresses, AUD is likely to underperform on a broad USD recovery driven by looming Fed tightening which should allow GBP to hitch a ride and outperform its Australian rival.

Callow also believes Australian growth momentum is more prone to disappointment on a multi-month basis opening up a break above GBP/AUD 2.00.

Technical Forecasts See Momentum Favouring GBP

From a technical perspective Westpac’s David Coloretti appears a little more bullish saying a weekly close above 1.9650/70 (previous multiweek highs) will confirm a bullish multi-week outlook. “This should set up the next test of 2.0000/30, the break of which has material bullish MT implications.”

The analyst notes renewed upside in the past 2 weeks has not only produced a new 10 week

high in price, but returned medium term momentum to a positive trajectory / bias.

This implies that the downward correction is complete.

As the below shows us, broader trend momentum continues to favour the UK currency with gains being recorded since mid-2014.

Long-Term Range in Sight

Taking another step back and looking at the longer-term picture we are told the GBP is actually deviating back towards its long term average rate versus sterling.

“The 1.90-2.05 range accounts for 8.6% of days since the 1983 AUD float while trade within 2.05-2.20 totals a hefty 19.6% of daily closes,” say Westpac.

It is observed Australia’s terms of trade is still above its historical average and low UK inflation means BoE tightening is still not imminent, Westpac believe the pair probably won’t test its 2.18 average over the next 12 months.

“However, it could get close if the UK recovery remains on track,” says Callow.