Pound Australian Dollar (GBP/AUD) Strengthens amid UK Energy Crisis
UPDATE 21/9/21 17:00: The GBP/AUD recovered through the European trading session to push the Pound to AU$1.88 against the Australian Dollar.
News of the UK government’s intervention in the looming UK gas crisis and successful talks to restart CO2 production to prevent food and medical supply shortages supported GBP exchange rates.
Meanwhile, the Australian Dollar came under pressure from souring market sentiment as fears linger over Chinese property developer Evergrande defaulting and causing an equity market selloff.
The Pound Australian Dollar (GBP/AUD) exchange rate had continued to fall overnight as concerns increased over the UK’s gas crisis and CO2 shortages threaten food supply.
At the same time, AUD exchange rates strengthened slightly after market sentiment improved slightly following yesterday’s risk-off mood.
The Reserve Bank of Australia’s (RBA) meeting minutes failed to drive significant movement in the Australian Dollar after the central bank confirmed monetary policy would remain unchanged despite Delta variant concerns.
These factors pushed the GBP/AUD exchange rate down to AU$1.87 early this morning before recovering to AU$1.88.
Pound Steady Despite UK Facing Winter Gas Crisis
GBP exchange rates fell at the start of this week as worries grow that UK gas supply shortages threaten to disrupt the country’s economy.
Gas prices have soared to record highs, rising 250% since January. The surge in costs are set to hit household bills and business costs, potentially impacting UK economic growth.
The gas crisis is putting imminent pressure on the UK food industry as CO2 shortages – used in food production – could lead to empty shelves.
Ian Wright, CEO of the Food and Drink Federation, explained:
“We have been saying for several weeks now that the ‘just in time’ system which underpins our supermarkets and our hospitality industry is under the most strain it has ever been in the 40 years it has been there.
“We probably have about 10 days before this gets to the points where consumers, shoppers and diners notice that those products are not available”.
The threat of disruption to the wider UK economic outlook going into winter is weighing on the Pound so far this week.
However, today’s better-than-expected CBI Industrial Trends Orders gave Sterling some support as the figures showed manufacturing order books hit a record high and export orders hit their strongest levels since March 2019.
Australian Dollar Stabilises on Improved Market Sentiment
The Australian Dollar is recovering some of its recent losses so far today.
After starting the week under pressure amid a risk-off mood triggered by the deepening debt crisis at Chinese property giant, Evergrande, which threatens to trigger a selloff in equity markets, AUD exchange rates have benefitted from a slight improvement in market sentiment.
Meanwhile, the RBA’s latest minutes from its September policy meeting failed to drive significant movement in AUD exchange rates after the central bank confirmed expectations.
Minutes of the meeting showed the RBA will maintain accommodative monetary policy by keep interest rates at 0.1% until 2024, and continue its bond-buying programme until at least February, although it will taper bond buying to AU$4 billion a week.
However, the RBA warned that the spread of the Delta variant of coronavirus threatens to slow Australia’s economic recovery.
The RBA minutes showed:
“The economy was expected to bounce back as vaccination rates increase and restrictions are eased.
“However, there was considerable uncertainty about the timing and pace of the recovery, which was likely to be slower than experienced earlier in 2021.”
The RBA’s caution failed to weigh AUD exchange rates, as Victoria’s lockdown easing roadmap announcement provided cautious optimism for ‘Aussie’ investors.
GBP/AUD Exchange Rate Forecast: Bank of England Set to Drive Pound Movement
The GBP/AUD exchange rate is set to be driven by the Bank of England’s (BoE) latest interest rate decision, and Australian and UK services and manufacturing PMI data this week.
While the BoE is expected to maintain its policy stance and keep interest rates at 0.1%, any hints at its forward guidance could drive volatility in GBP exchange rates.
Against the backdrop of the UK’s looming energy crisis, rising inflation, and disagreement among the monetary policy committee in the summer that quantitative easing should be reduced, suggestion the central bank may change its policy stance could stoke volatility.
More strong manufacturing and services PMIs for September may underpin Pound support, however, while a forecast stronger Australian services PMI of 44 may support AUD exchange rates, although it would still indicate contraction in the private sector.