GBP/AUD could struggle to sustain recent momentumFaces technicals resistances between 1.7571, 1.7739 But gruesome global economic outlook offers support

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The Pound to Australian Dollar exchange rate has rallied sharply over the last fortnight and entered the new week on the front foot but could struggle to extend its recovery much beyond the current 1.76 level in the days ahead.

Sterling remained buoyant against the Australian Dollar on Tuesday after sharp earlier losses for the Aussie helped to sustain a fortnight long recovery that has lifted GBP/AUD from late September lows that coincided with some of the Pound's weakest levels since the aftermath of the Brexit referendum.

"AUD/USD set a new cyclical low near 0.6250 in the Asia session. Australian government bond yields followed the UK gilt yields higher and added 9‑17bp across the curve," says Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.

"Consumer sentiment fell in October and remains at very pessimistic levels. By contrast, business conditions strengthened in September," Kong said in reference to economic barometers released in Australia on Tuesday.

GBP/AUD traded briefly below the 1.60 handle in September but had risen back above 1.76 by Tuesday.

Above: Pound to Australian Dollar rate shown at daily intervals with Fibonacci retracements of 2022 downtrend indicating possible areas of technical resistance for Sterling and selected moving-averages. Click image for closer inspection.

Sterling is yet to sustain a daily close above the 50% Fibonacci retracement of its 2022 downtrend located at 1.7571, however, and would soon meet technical resistance from a 200-day moving-average at 1.7739 if it did and so any further notably increases could take time to materialise if they're seen at all.

"GBP/AUD risks remain skewed to the upside and a rise above 1.7709 is possible in coming weeks," Kong had said previously on Monday.

The Pound was helped on Monday and Tuesday when the main Australian exchange rate AUD/USD fell to its lowest level since April 2020 and would potentially benefit further if Kong and CBA colleagues are right to anticipate further declines for AUD/USD in the weeks ahead.

This is because GBP/AUD closely reflects the relative performance of Sterling and the Australian Dollar when each is measured against the U.S. Dollar.

"With Chinese growth concerns added to the mix, AUD is also under steady pressure, but at least that brings economic benefit in due course. In the UK’s case, it will just deepen the upcoming recession," says Kit Juckes, chief FX strategist at Societe Generale.

"More widely though, dollar strength will persist until the Fed sees enough slack in the labour market or enough global growth risks, to change path," he added.

Above: AUD/USD shown at weekly intervals with GBP/USD and upside down or inverted exchange rates for USD/CNH and USD/CAD. Click image for closer inspection.

Australia's Dollar and other commodity-linked currencies are often said to be among the most at risk in any global economic downturn like that now widely expected among analysts and economists, although all such currencies had been notable outperformers until recent weeks.

"The Aussie dollar has slumped by around 1.8% since the start of the week, underperforming compared to all its G10 peers. AUD is a quintessential proxy trade for China’s economic outlook, and has historically been highly sensitive to any US-China trade relationship developments," writes Francesco Pesole, an FX strategist at ING, in a Tuesday market commentary.

"Despite domestic monetary policy not being a primary driver for AUD in the past months, the Reserve Bank of Australia's lower-than-expected rate hike last week – especially when compared to the Reserve Bank of New Zealand's larger move – may be exacerbating the bearish sentiment on the currency," he added.

Meanwhile, and over in the UK, Sterling has taken in its stride a Bank of England (BoE) intervention in the government bond market where it's providing emergency liquidity to address risks associated with some pension funds.

However, official data has provided a further glimpse of cracks appearing in the labour market after the Office for National Statistics reported on Tuesday that September saw what was the largest one-month increase in new unemployment-related welfare claims since March 2021 and the aftermath of one of the 'lockdown' periods.

Above: Pound to Australian Dollar rate shown at weekly intervals with Fibonacci retracements of 2016 recovery indicating possible areas of technical support for Sterling. Click image for closer inspection.