This week, our currency strategists focused on the Australia CPI Report (February 2025) for potential high-quality setups on Aussie dollar pairs.
Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay.
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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GBP/AUD: Tuesday – March 25, 2025
GBP/AUD 1-Hour Forex Chart by TradingView
On Tuesday, our strategists had their sights set on the Australian CPI report and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for headline CPI to rise to 2.6% y/y from 2.5% previously, while monthly inflation indicators from business surveys pointed to easing cost pressures, suggesting a possible downside surprise that could bolster dovish RBA expectations.
With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario:
If CPI came in hotter than expected, we figured it would back the RBA’s wait-and-see stance on rate cuts, which could give the Aussie a lift. We were eyeing AUD/CHF for potential long plays, especially if risk sentiment stayed upbeat. The SNB’s relatively more dovish tone, along with the franc’s vulnerability to U.S. tariffs and the dollar’s safe-haven pull, made it a good matchup.
On the flip side, in a risk-off mood, AUD/NZD looked like a solid long. The RBNZ has been more open about cutting rates, while the RBA’s been a bit more cautious. At the time, that divergence gave the Aussie an edge.
The “Aussie Avalanche” Scenario:
If Australia’s inflation data came in soft, we figured that would ramp up RBA rate cut expectations and drag on the Aussie. In a risk-on mood, we liked the idea of going long GBP/AUD. The BOE’s been relatively less dovish, the U.K. economy isn’t as exposed to U.S. tariffs, and the pair’s been climbing steadily in an ascending channel.
If risk sentiment turned negative, shorting AUD/JPY looked like a solid play. The pair’s been stalling around the middle of its channel, and the yen tends to benefit from anti-USD flows when things get shaky.
What Actually Happened:
The February CPI report showed a cooling in Australian inflation:
- Headline CPI came in at 2.4% y/y, below both expectations (2.6%) and the previous reading (2.5%)
- Trimmed mean inflation (the RBA’s preferred core gauge) also dipped to 2.7% from 2.8%
- Key contributors to annual inflation included food and non-alcoholic beverages (up 3.1%), alcohol and tobacco (up 6.7%), and housing costs (up 1.8%)
- Rental prices rose 5.5% annually, down from 5.8% in January, showing the slowest growth since March 2023
- Electricity prices fell significantly (-13.2%) thanks to government energy rebates
- Automotive fuel prices declined 5.5% year-over-year, following a 1.9% drop in January
This outcome fundamentally triggered our AUD bearish scenarios, with the cooling inflation strengthening the case for further monetary easing by the RBA. Markets responded by pricing in a roughly two-thirds chance of a rate cut in May, following the bank’s first reduction since 2020 earlier this year in February.
Market Reaction:
Looking at the GBP/AUD chart, we can see that the pair initially found resistance near the mid-channel area around the pivot point (2.0520) before the CPI report. After the weaker-than-expected Australian inflation data, GBP/AUD began to climb, though the move quickly reversed after the U.K. printed its own disappointing CPI data that supported further rate cuts from the BOE.
Luckily for the long setup, GBP/AUD soon turned higher following the U.K. government budget statement. Though the Office for Budget Responsibility (OBR) cut growth forecasts and raised borrowing and inflation estimates, Chancellor Reeves announced several policies that could help stabilize the economy, including no tax increases and investments into construction programs. This provided a significant boost to the pound.
GBP/AUD tested key technical support around the 61.8% Fibonacci level and S1 Pivot Point (2.0400), where buyers stepped in decisively, confirming our technical analysis. The pair then rallied strongly, breaking through the pivot level (2.0520) and moving toward R1 (2.0720) after the U.K. budget news.
Friday’s U.K. retail sales data showing a surprise 1.0% m/m increase (vs -0.2% expected) provided additional support for Sterling, helping GBP/AUD maintain its gains despite broad market risk aversion. The pair finished the week well above our initially targeted pivot level.
The Verdict:
So, how’d we do?
Our fundamental analysis accurately anticipated AUD weakness on disappointing inflation data, which materialized in the actual numbers. Our technical analysis also correctly identified the channel structure and key support/resistance areas that influenced price action.
Overall, we think this discussion “likely” supported a net positive outcome as both fundamental and technical triggers aligned well. However, this setup highlights the importance of proper trade management. GBP/AUD initially popped after the Aussie CPI miss, then quickly gave up ground when the U.K. released its own disappointing inflation numbers and traders started pricing in weaker growth projections.
For traders who bought near the 61.8% Fibonacci and S1 support area and held through the chop, patience paid off. The pair ended up rallying more than 300 pips at the week’s high. Friday’s strong UK retail sales report added fuel to the fire, helping GBP/AUD hang on to gains even with some late-week profit taking.
But traders who entered long positions after the Australian CPI release would have needed patience and solid risk management to weather this initial volatility. The true catalyst for the sustained rally wasn’t just the Australian data, but the subsequent U.K. budget announcement. This served as the stronger driver that finally propelled GBP/AUD higher, demonstrating how forex pairs often require multiple fundamental factors aligning before a clear trend emerges.
This pattern reminds us that while our analysis of the Australian CPI impact was correct, sometimes the key to profitability is adapting to evolving fundamental catalysts that emerge during the trade.
