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FOREX: HSBC Recommend Selling GBPAUD With 1.90 Target

FOREX
  • HSBC has indicated their preference to sell GBPAUD and have entered a short at 1.9541 with a target of 1.9000 and a stop-loss at 1.9815.
  • According to HSBC, the BOE’s rate cut should not be taken lightly, in the context of how crowded long-GBP carry trades are. Indicative positioning data stands out and GBP has been outperforming among high-yielding currencies amid the latest carry unwind. HSBC expect extended GBP weakness as its carry buffer starts to narrow.
  • Fundamentally, the UK has seen a subdued basic balance (i.e. negative current account balance, net FDI and net foreign portfolio investments), but quite significant inflows under the "other investments" category, related to high interest rates the UK offers.
  • They also cite AUD as screening quite cheap versus its underlying drivers. After incorporating the movements in relative rates following the underwhelming 2Q Australia CPI, AUD-USD still only sits at the lower bound of their modelled range (around 15th percentile).
  • Risks to the trade include hawkish UK developments which could shift the BoE into a more cautious stance, further negative growth shocks in China and a dovish surprise by the RBA at its August meeting.
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