Société Générale recommends shorting GBP against AUD, targeting 1.8200

⑴ Société Générale released a trading strategy on Tuesday, recommending shorting GBP/AUD spot at the price of 1.8800, with a target of 1.8200 and a stop-loss set at 1.9100.⑵ The institution believes that the support for the pound comes more from short covering rather than genuine demand-driven factors. The UK's persistent balance of payments weakness makes its currency reliant on portfolio inflows, and the Bank of England's delay in rate cuts has not provided sufficient real interest rate appeal. Meanwhile, households' exposure to energy prices also limits the upside potential for the pound.⑶ In contrast, the Australian dollar has a clear and expanding interest rate advantage as well as a stronger relative rate environment, with hedging flows providing additional support. Société Générale also pointed out that although Australia relies on crude oil imports, the Australian dollar has shown resilience during Middle East conflicts; even amid heightened tensions and a stronger US dollar, its terms of trade remain constructive.⑷ Regarding risks, Société Générale warns that if Australian data or statements from the Reserve Bank of Australia turn dovish, it could weaken the interest rate support for the Australian dollar; a sharp correction in global energy prices would also put pressure on the AUD. Conversely, any improvement in UK economic growth could boost the currently subdued sentiment for the pound.