GBP/AUD broadly supportedIn a low-volatility environmentMost indicators are supportive of limited gainsWatch Aussie monthly inflation release

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The Pound to Australian Dollar exchange rate (GBP/AUD) can move higher over the coming days thanks to a broadly constructive technical setup, however, any surprises in this week's Aussie inflation figures would invalidate this view.

At 1.9335, GBP/AUD trades above its major moving averages, underscoring our preference for upside. Only a break below the 200-day moving average would turn us bearish on a multi-week timeframe.

To be sure, like many other major currencies, volatility is relatively low in GBP/AUD, with the daily ranges becoming smaller, which suggests there is limited scope for significant moves in either direction at this juncture. (The market is waiting for some major development regarding the Fed and U.S. Dollar, so it is always worth keeping an eye on the bigger picture).

Above: GBP/AUD at daily intervals.

A near-term support line at approximately 1.9180 will limit any weakness this week. This area formed a resistance line in the October-December period, confirming its technical relevance.

The ADX is nevertheless pointing lower, which is consistent with further downside. But another momentum signal, the RSI, is above 50 and supportive.

So, while we are not getting flashing bullish signals, we are comfortable aiming for higher levels. The upside is likely constrained by 2024's high at 1.9525.

The highlight of the week ahead for the Australian Dollar is the monthly inflation indicator, due 00:30 GMT on Wednesday, where a reading of 3.5% year-on-year in January is anticipated.

This will be the only inflation print before the RBA's next interest rate policy deliberations, which take place on 18-19th March.

Above: Monthly CPI indicator, % change. Image courtesy of CBA.

Be aware that there will be some uncertainty surrounding this report owing to the annual reweighting of the goods and services contained in the inflation basket, which can cause some volatility. Therefore, any AUD reactions on any major under or overshoot could be faded.

Elsewhere, retail sales for January are due out on Thursday (1.7% expected), which could also offer some interest as they should give an insight into how consumer sentiment and demand are holding up.