How to Trade the GBPAUD Currency Pair
In December 2021, the UK and Australia signed a free trade agreement which is expected to boost trade by 53 per cent and add more than £2.3 billion to the UK economy. While the deal is yet to be ratified it makes GBPAUD investing much more interesting, especially considering the volatility in the British pound from UK prime minister Liz Truss and Chancellor Kwasi Kwarteng's 'mini-budget' announcement in September 2022.
In this ‘How to Trade GBPAUD’ article, we cover how to find GBPAUD ideas for trading using technical and fundamental analysis, a long term GBPAUD forecast and how to access FREE, expert tools to identify the GBPAUD sentiment and correlation and much, much more!
Table of Contents
How Does GBPAUD Trading Work?
GBPAUD is the symbol for how the British pound is trading against the Australian dollar. In currency trading, the first currency in the pair is referred to as the ‘base currency’ while the second currency in the pair is referred to as the ‘terms or counter currency.’
If the GBPAUD exchange rate was trading at 1.7670 it means that 1 British pound will buy you 1.7670 Australian dollars. As you may have seen at a currency exchange, there are usually two prices quoted next to a currency pair.
The two quotes next to a currency name are referred to as the bid price (left column) and ask price (right column). These prices will fluctuate up and down when the currency market is open which is 24 hours a day, 5 days a week.
- If you believe the GBPAUD exchange rate will rise in value and wanted to buy (or go long) the currency pair, you can only do so at the current ask price.
- If you believe the GBPAUD exchange rate will fall in value and wanted to sell (or go short) the currency pair, you can only do so at the current bid price.
With products such as contracts for difference (CFDs), you can speculate on the price direction of an exchange rate and potentially profit from both rising and falling markets. The concept is the same when learning 'How to Trade GBPUSD' and 'How to Start GBP/JPY Investing.'
You can learn more about how short selling works in the ‘What is Short Selling?’ article as Admirals provides a variety of CFD trading accounts for you to trade with.
GBPAUD Trading Costs
You may have noticed that there is a difference between the bid price and the ask price of a currency pair. This difference is known as the spread and is just one cost of trading currencies.
In the above screenshot, the spread of GBPAUD is 0.00064 (1.76692 - 1.76628). As the minimum contract size for the currency pair is 0.0001, this means the spread is 6.4 pips. How does this affect forex traders?
If you bought at the ask price, then the market would need to move at least 6.4 pips higher for you to break even as now the bid price (the price which you can sell at) would be at the same price level as you bought at (the ask price at the time).
To put this into perspective the average daily trading range, at the time of writing is more than 222 pips per day. With Admirals, you can access a Zero trading account which has institutional grade spreads starting from just 0.1 pips!
Learn more about the different trading and investing accounts that provide competitive commissions on the ‘Types of Trading Accounts’ page or get started today by opening a FREE demo trading account.
GBPAUD Fundamental Analysis
When it comes to making GBPAUD buy or sell decisions some traders may use fundamental analysis to aid in their decision making. Fundamental analysis involves analysing the economic picture and economic indicators such as employment figures, interest rate policy, retail sales and others.
There are a few key GBPAUD fundamental analysis indicators to take into account:
The UK and Australian Economy
Whether an economy is strong or not can have an impact on the direction of its currency.
- If an economy is performing well, international investors may move their money into that economy to capitalise on that growth.
- If an economy is doing poorly, the investors may move their money out of that economy.
The Bank of England (BOE) and Reserve Bank of Australia (RBA)
Central banks have a mandate to adjust interest rates to meet a certain inflation target. Changes in interest rates can have a big impact on a currency’s direction.
- In normal economic conditions, rising interest rates can lead to international investors moving their money into that economy to capitalise on the higher rate of return.
- In normal economic conditions, falling interest rates can lead international investors to move their money out of that economy and park into a better economy providing a higher rate of return.
- Money market fund managers will use interest rate differential strategies. Currency trends that develop because of this are referred to as the ‘Carry Trade.’
An important note here is to understand that sometimes the opposite could hold true when in a period of stagflation. This is a situation where the economy is slowing while inflation is rising. Even though central banks may increase interest rates to bring inflation down, the currency may fall due to low economic growth.
This was the case with the British pound during the early part of 2022. The currency fell, even though the central bank was increasing interest rates as investors feared the economy was slowing due to the cost of living crisis in the UK.
The Role of Government and Politics
The role governments and politics can have on an economy and therefore its currency, should not be underestimated.
- In the UK, the Brexit referendum in 2016 and the cost of living crisis in 2022 played a major role in the weakness of the British pound. Both situations caused economic weakness which led to investors moving their capital out of the UK and therefore the British pound. In September 2022, newly voted-in prime minister Liz Truss and her Chancellor announced a 'mini-budget' with increased borrowing to fund tax cuts. The market reacted negatively to the announcement sending the British crashing lower.
- In Australia, the government’s attitude towards China can play a major role in the Australian dollar. This is because a large part of the Australian economy relies on commodity exports to China. In early 2022, China’s economy slowed massively due to its Covid zero policy with many cities still in lockdown. At the same time, nearly all Australian dollar currency pairs weakened.
Stay up to date with all the latest news and analysis by registering for your FREE place in the Admirals live market webinars.
GBPAUD Technical Analysis
Another – and more popular – technique for GBPAUD investing decisions is the use of technical analysis. This is the study of chart patterns and technical trading indicators to understand the market and identify potential buying and selling opportunities.
The chart above shows the 5 minute price action of GBPAUD. It includes indicators such as Bollinger Bands, Pivot Points and the Admirals Mini Terminal for those who upgrade their MetaTrader trading platform to the Supreme Edition (which is free!).
GBPAUD technical analysis comes in three different areas:
- GBPAUD Chart Patterns. This is the study of chart patterns such as ascending and descending triangle formations, consolidation patterns, wedge formations and many others. These patterns can help identify the market condition.
- GBPAUD Candlestick Patterns. Price action trading is a popular way to analyse currency pairs. A candle is a chart type which shows the open, close, high and low of a certain time period. These can form in certain ways that can help identify who is in control of the market – buyers or sellers.
- GBPAUD Technical Indicators. Technical trading indicators are tools that analyse different types of price movements. These include moving averages, pivot points, the stochastic oscillator and many others.
Finding GBPAUD Ideas for Trading
When starting out trading GBPAUD and other currency pairs it can be daunting to know what technical analysis indicators and parameters to use and to have the confidence in using them properly.
This is where the Technical Insight Lookup indicator can help in finding GBPAUD ideas for trading and investing.
You can access this indicator in the Dashboard once you’ve opened an account, under the Premium Analytics tab.
In the screenshot above, after searching for GBPAUD, the indicator now shows all the technical events that are happening on the exchange rate of GBPAUD in the short-term, intermediate-term and long-term.
This can not only help traders find GBPAUD ideas to expand on but it can also help to improve your knowledge of technical analysis indicators and how to use them.
Open an account today and visit the Premium Analytics section yourself!
Trading GBPAUD Sentiment
Understanding the sentiment towards the currency pair you are trading can be useful in helping to identify who is in control of the market – buyers or sellers.
With the Admirals MetaTrader Supreme Edition plugin, you can access sentiment indicators.
The screenshot above shows the GBPAUD sentiment at the time of writing. This shows that at that time, there were more clients of Admirals long on the currency than short.
Traders can either use this to trade ‘with the crowd’ or use it as a reversal indicator. For example, if the reading says 100% long or 100% short then it means at some point the market will reverse when traders start to take profits off the table.
Of course, much more analysis needs to be done here from the individual trader as the sentiment of the market does necessarily confirm the trend or provide entry or exit levels. Risk management is also very important as you always need to be prepared for a losing trade.
Trading GBPAUD Correlation
Understanding GBPAUD correlation is useful when thinking about the risk management of your positions. After all, currencies are paired with another one so there will be times when some currency pairs are highly correlated with another.
In this situation, trading two highly correlated currencies could mean you are overexposing yourself to a particular currency. With the Admirals MetaTrader Supreme Edition plugin, you can access correlation indicators.
The screenshot above shows the GBPAUD correlation to other currency pairs at the time of writing.
- Red box = strong correlation
- Orange box = medium correlation
- Blue box = weak correlation
- Green box = no correlation
In the GBPAUD correlation matrix window, it shows that – at the time – GBPAUD was highly correlated to EURAUD. This is most likely down to the fact both term currencies are the Australian dollar and the euro and the British pound can have the same sentiment as they are two similar economies.
It also shows that – at the time – there was no correlation between GBPAUD and USDCAD. This means if you were trading these two currencies they are likely to move independently of one another.
Upgrade your MetaTrader trading platform to the Admirals Supreme Edition completely FREE and access sentiment, correlation and a wide range of other indicators to aid in your trading decisions!
Long Term GBPAUD Forecast
At the start of 2022, GBPAUD was trading at a key level of support and resistance. GBPAUD support and resistance levels can be useful in helping to determine where the market may move next.
The long term chart of GBPAUD below shows a key level of horizontal support around 1.5961 (shown by the black horizontal line). Two times in 2016/2017, the price turned from this price level highlighting its significance. As the price came back to this horizontal level in early 2022, it turned higher on another two occasions.
The price of GBPAUD crashed to this level in just a few days from the UK government's 'mini-budget' announcement in September 2022. However, the price did not break through the horizontal support level with some buyers driving price higher.
If the GBPAUD exchange rate can stay above this price level then traders will look for clues from buyers building positions in anticipation of higher prices – as that is what has happened multiple times before.
However, if the exchange rate manages to break below this support level then it could turn into a resistance level, painting a more bearish picture.
If you’re interested in learning more about trading the currency market with expert tools then register for your FREE place on the Forex 101 Trading Course!
Why Trade GBPAUD with Admirals?
If you trade GBPAUD with Admirals, you can:
✔️ Trade with a broker regulated by the UK Financial Conduct Authority, Cyprus Securities and Exchange Commission, the Jordan Securities Commission and many others.
✔️ Trade with spreads as low as 0 pips with Zero.MT4 and Zero.MT5 accounts.
✔️ Trade Forex, indices and commodity CFDs with competitive spreads and swaps.
✔️ Access the MetaTrader platform on desktop, web or mobile and upgrade to the MetaTrader Supreme Edition FREE!
✔️ Access a range of free extra tools including the Technical Insight Lookup indicator, Sentiment Trader and Correlation Matrix.
️✔️ Attend live trading webinars for free to learn from experienced traders.
✔️ Trade currencies 24 hours a day, five days a week.
Did you know the best way to get started is to open a FREE demo trading account?
This will allow you to test out all of the services and features provided by Admirals in a virtual trading environment until you are ready to go live.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.