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The time to pull the sell trigger on GBP/AUD is approaching, according to a new strategy call from Macro Hive, the independent global macro research and strategy provider.

Macro Hive's Richard Jones says the time has come to refocus on the Australian Dollar following its outperformance since mid-October.

"We lean towards bullish AUD over the medium term," says Jones, "especially versus GBP."

Jones has been a long-time bear on the British Pound, a difficult call in a year when the currency has largely outperformed its peer group. In fact, at the time of writing it is the second-best performer of 2023, just behind the Swiss Franc.

The Pound to Australian Dollar exchange rate (GBPAUD) is meanwhile 8.0% up on the year, although it has cooled from its August peaks as it now quotes at 1.9162 at the time of writing.

However, Jones is pessimistic about the UK economy and thinks this will ultimately weigh on Pound Sterling, sending GBP/AUD lower.

Finding a currency to express this view leads him to the Aussie Dollar, where the stars are expected to line up for a period of outperformance in 2024.

The Macro Hive strategist says for the Australian Dollar to strengthen against the Pound, the Federal Reserve must prove sufficiently 'dovish' to create the global market conditions within which the Aussie thrives.

(Rate cuts = an easier growth backdrop that supports commodity-linked currencies such as AUD).

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He sees a 25% chance the Fed is forced to cut interest rates in line with market pricing (a cut coming in the first half of 2024).

"This would likely support risk and be bearish for USD," explains Jones. "The obvious trade here then would be long AUD/USD".

However, "an alternative would be to find different central banks that are ripe for cutting the policy rate. We remain bearish on the UK economy, so short GBP/AUD could work here," he explains.

Jones sees a 60% chance the Fed will eventually cut in 2024 but later than currently priced. This creates a messier environment of stop-start episodes for the Australian Dollar.

But ultimately, the Australian Dollar will find its feet when the cuts do come, "given a lot has been priced out for the BoE, it would mean GBP/AUD trades higher before trading lower," says Jones.

An "outright bad" case for the AUD involves a higher-for-longer interest rate regime at the Federal Reserve, where risk "takes a beating" and "being short AUD would make sense here".

"We lean towards bullish AUD over the medium term, especially versus GBP. Given our view that positivity could be priced out, GBP/AUD might trade higher before lower. As such, we wait to turn short GBP/AUD," says Jones.