Pound Australian Dollar (GBP/AUD) Exchange Rate Sumps to One-Week Low amid Food Supply Concerns

Pound Australian Dollar (GBP/AUD) Exchange Rate Tumbles as Gas Crunch Threatens Food Supplies

(Updated 16:45, 20/9/21) The Pound Australian Dollar (GBP/AUD) exchange rate slid to a near one-week low this afternoon as UK businesses warn of ‘significant disruption to the entire food supply chain’.

Adam Couch, CEO of UK food company Cranswick, warned that the shortage of CO2 paired with labour shortages could cause ‘a major crisis in the food industry’. Couch said:

‘I call upon the Government to act immediately to avert a major crisis in the food industry. The sector has been asking for support to ease the labour crisis, and now CO2 shortages could effectively bring production to a halt throughout the supply chain.’

CO2 is used to stun animals before slaughter as well as during processing to extend the shelf-life of meat products.

Meanwhile, Nick Allen of the British Meat Processors Association has said that some producers could run out of CO2 in as little as five days, forcing them to halt production and potentially cull livestock.

Original article continues below:

Pound Australian Dollar (GBP/AUD) Exchange Rate Rangebound as Economic Concerns Grow 

The Pound Australian Dollar (GBP/AUD) exchange rate is relatively subdued this morning, having lost its gains after spiking overnight. 

Both currencies are facing headwinds amid the European energy crisis and a downbeat market mood, leaving the GBP/AUD pair to trade in a narrow range. 

Pound (GBP) Subdued as Gas Crunch Bites 

The Pound (GBP) has started the week on the back foot, as the worsening European energy crisis is causing concern among GBP investors. 

The rising cost of natural gas is beginning to have a major effect on UK businesses, causing two fertiliser plants to shut down last week as production became unprofitable. 

Over the weekend, the business secretary Kwasi Kwarteng scrambled to draw up a plan for limiting the damage caused by the gas crunch. This morning he is holding an emergency summit with gas industry leaders to discuss contingencies. 

Kwarteng has decided that mid-level suppliers will be placed in administration if they find themselves struggling, in an effort to protect households from surging energy bills. Meanwhile, smaller suppliers will be allowed to go bankrupt and their customers will be auctioned off to whichever providers can offer the cheapest rates. 

Five small energy firms have already folded in the last five weeks, affecting half a million customers, with another four companies expected to go bust by the end of the month. 

In addition, the NHS has warned that the shortage in CO2 could lead to operations being cancelled, adding to the health service’s pandemic backlog. A lack of CO2 may also have knock-on effects for the food and drink industry, with meat and fizzy drinks requiring the gas for production. 

With the gas crunch already hitting the UK economy, and worse expected to come, GBP is struggling today. 

Australian Dollar (AUD) Muted amid Gloomy Market Mood 

Meanwhile, the Australian Dollar (AUD) is also rather subdued today as a lack of risk appetite drains demand for the risk-sensitive ‘Aussie’. 

Markets are affected by a number of factors today, including the European energy crisis, produce shortages and stagflation fears. In addition, today’s Canadian election and Sunday’s German election add to the uncertainty. 

The main reason for today’s market jitters, however, is the escalating Evergrande debt crisis in China. Evergrande, China’s second-largest property developer, faces a $300bn debt that it cannot service, which has led to the company’s shares tumbling. 

Contagion risks have now caused the Hong Kong stock market to slump, which is spreading into the European markets. 

As a risk-sensitive currency, and with Australia’s crucial trade ties with China, the Australian Dollar has taken a hit. However, the current weakness in GBP is limiting AUD’s losses. 

GBP/AUD Exchange Rate Forecast: Pound Could Firm if Risk Appetite Worsens 

As the day goes on, we will likely see these headwinds continue to influence the GBP/AUD pair. If the market mood worsens, however, Sterling may be able to gain the edge. 

Tomorrow, we could see GBP/AUD tick higher. The latest meeting minutes from the Reserve Bank of Australia (RBA) may not give the ‘Aussie’ much support after RBA Governor Philip Lowe’s dovish comments last week. 

Meanwhile, the Confederation of British Industry’s order book balance is expected to print at 15. While this is a drop from last month’s 18, it’s still a decent result and may support Sterling.