- GBP/AUD trapped in range with path higher stymied by resistance.

- 23.8% Fibonacci retracement bars GBP/AUD path higher on chart.

- As CBA forecasts eye return to summer 2019 lows before year-end.

Image © Adobe Images

GBP/AUD spot rate at time of writing: 1.8306Bank transfer rate (indicative guide): 1.7665-1.7793FX specialist providers (indicative guide): 1.8031-1.8141More information on FX specialist rates hereThe Pound-to-Australian Dollar rate remained locked in a tight August range Wednesday with its path to the upside stymied by resistance on the charts, although Commonwealth Bank of Australia (CBA) forecasts point to an eventual capitulation by Sterling that pulls GBP/AUD lower by year-end.

Australia's Dollar was higher against all major currencies other than the Japanese Yen on Wednesday, although stock markets were mostly lower and the U.S. Dollar was higher against most counterparts with the exception of the Yen, Aussie and Kiwi.

The Pound-to-Australian Dollar rate was a-0.05% lower at 1.8259 but still within the narrow range that has mostly confined it to between 1.82 and 1.84 this month as a result of consolidation within equally narrow ranges among major exchange rates like AUD/USD and GBP/USD.

"AUDJPY was bought ahead of Tokyo open, which brought the AUDUSD onto 0.72-handle. I suspect Japanese investors are readying for the AUD1bn of bill auction tomorrow. Unfortunately, AUDUSD met resistance and settled around 0.7200," says Patrick Bennet, a macro strategist at CIBC Capital Markets.

Above: Australian Dollar performance on Wednesday. Source: Pound Sterling Live.

AUD/USD has been spent this month at highs not seen since January 2019 but has been prevented from climbing further by its 200-week moving-average at 0.7250, while GBP/USD has spent most of its time sandwhiched between 1.30 and 1.3265, which has kept GBP/AUD steady between 1.82 and 1.84.

But the medium-term outlook has improved for the Aussie much more than it has the UK or Sterling, with China's investment led economic recovery from the coronavirus shutdown having lifted prices of Australian commodities exports.

When combined with a comparatively low level of debt-to-GDP ahead of the pandemic, the Aussie's appeal to investors has been bolstered among major currencies. Meanwhile, the Brexit saga draws on in the UK with only familiar deadlock over the same differences to show for the efforts of both sides.

"Solid Australian bulk commodity prices are the major driver of our forecasts for a higher AUD/GBP. At the same time, ongoing uncertainty about Brexit developments can also add to AUD/GBP upside," says Kim Mundy, a strategist at CBA. "Once Brexit uncertainty has passed, we expect some consolidation in AUD/GBP. GBP’s strong underlying fundamentals, including the Australia‑UK real two‑year interest rate spread are GBP supportive. In our view, the risks to AUD/GBP are mixed. AUD/GBP can lift if the likelihood of a hard Brexit increases. On the flip side, AUD/GBP can fall if rising virus cases around the world slow the global economic recovery."

Above: GBP/AUD at daily intervals. Range-trading while trapped under 23.6% Fibonacci retracement of 2020 downtrend.

Brexit talks were extended to run through last week but ended with both sides warning that time is running short and an agreement remains far away. Red lines resulting from arguably incompatible objectives on the two sides were firmly in the frame for the deadlock. The UK has sought to recover an independent policymaking capacity in all of the ever increasing number of areas where the EU has held competence during the UK's membership while the EU is seeking to retain a whip hand in a range of areas.

Both parties have until December 31 to not only reach an agreement on the future trade relationship but to also ratify it through legal process, which will involve votes in all of the European institutions as well as member states. The uncertainty that results from this, about future trade between parties that are among the largest of each other's trade partners on either side, is a big part of why Commonwealth Bank of Australia looks for further Pound-to-Australian Dollar rate losses before year-end.

CBA forecasts Sterling will fall to 1.7857 by the time 2020 is out, its lowest since summer 2019 when 'no deal' Brexit fears reached fever pitch with the election of Boris Johnson as leader of the Conservative Party and then, Prime Minister. The banks see the Pound falling further to 1.7241 in 2021, although some of this move is also seen as the result of Australian Dollar strength. The Aussie is the third best performing major currency of 2020, behind only the Euro, Swiss Franc and Swedish Krona. Other forecasts can be found here.

"AUD/USD is side lined to negative, it has recently charted a key day reversal from the 200-week ma at .7253 the 55-month moving average at .7288. We look for a correction lower to take hold," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank, who's a seller of AUD/USD and is looking for a fall to 0.70. "Dips to the December high at .7031 and the 4 month uptrend at .7003 should remain well supported."

Above: AUD/USD shown at daily intervals with Fibonacci retracements of 2018 downtrend and selected moving-averages. 200-week average shown in black.