Sean Callow, an analyst at Westpac, notes that AUD has printed 6-month highs against the pound this week even as markets continue to price in further RBA rate cuts to follow up on the June and July moves.

• “The rebound in Australia’s commodity price basket from mid-June lows has reinforced official data showing Australia is recording record trade surpluses despite the ongoing angst over US-China trade tensions.
• This has shrunk Australia’s current account deficit to near balance, its strongest position since the mid-1970s and in stark contrast to the UK, whose C/A deficit of -5.6%/GDP the BoE drily notes is “large by international standards.
• Such a backdrop, supported by equity market gains and low volatility, maybe encouraging AUD short-covering despite the Australian economy’s sluggish domestic growth and inflation pulse which leaves the door open to another rate cut in coming months.
• But the steepest GBP decline in recent weeks came after BoE governor Carney took a notably dovish turn, showing particular concern over protectionism. Meanwhile, the seemingly imminent selection of Brexit hardliner Boris Johnson as UK PM reinforces underlying GBP pessimism.
• We look for further sterling underperformance multi-week to around AUD/GBP 0.5675/0.5700 or GBP/AUD 1.7550/1.7625. Multi-month though, AUD should soften on a range of crosses, including against the pound, so the next few weeks could be its strongest levels for 2019.”