Pound Australian Dollar Exchange Rate Trades Sideways on Lack of Data
(Updated 15:45, 25/08/2022) The Pound Australian Dollar (GBP/AUD) exchange rate remained subdued this afternoon as UK headwinds continued to weigh upon the Pound (GBP) while the Australian Dollar (AUD) remained buoyed by upbeat trading sentiment.
Adding to UK fears over the energy crisis is today’s announcement that CF Fertilisers UK is halting production of CO2 – a valuable product in the food and drinks industry as it is used extensively in the brewing process as well as in stunning livestock before slaughter.
The company claims it is no longer economical to continue production, as energy prices make the process unsustainable. CF Industries remarked that natural gas prices have risen to twice the level they were a year ago and are likely to continue rising.
Also facing increasing pressure are small UK businesses, who are finding it increasingly hard to source gas and electricity as energy firms anticipate an increase in bankruptcy. Suppliers are refusing to extend contracts for fear business owners won’t be able to pay.
The British Beer and Pub Association (BBPA) reported that one member had been turned down by five different suppliers, adding:
‘The market is failing the hospitality sector, and we need an energy price cap before this crisis forces pubs and other businesses across the country to close.’
Original article continues below:
GBP/AUD Exchange Rate Falls as UK Energy Crisis Intensifies
The Pound Australian Dollar (GBP/AUD) exchange rate is tumbling this morning as the Australian Dollar (AUD) is supported by positive news from China. Meanwhile, the Pound (GBP) is further subdued by stark warnings from independent agencies.
At the time of writing, GBP/AUD is trading at A$1.6955, down 0.7% from today’s opening levels.
Australian Dollar (AUD) Buoyed by Chinese Stimulus Package
The Australian Dollar is climbing against its peers today, supported by new measures in China to tackle weakening economic expansion. Due to its role as a proxy for the Chinese economy, positive news from the world’s second-largest economy invariably prompts AUD tailwinds.
On Wednesday, China’s cabinet introduced a $146bn (¥1tln) stimulus package largely directed toward infrastructure spending, to try and counter the damage inflicted by continuous Covid lockdowns and a slump in the country’s property market.
Following the introduction of the package, Li Zhong, China’s Vice Minister of Human Resources and Social Security, said that China will focus on creating employment opportunities – promoting fiscal, monetary and industrial policies to stabilise its labour market.
Zhong observed: ‘Structural contradictions have become more prominent with rising uncertainties and unstable factors. The job employment work still faces big challenges.’
Support for the Chinese Yuan (CNY) was capped, however, as analysts suggest the measures will not go far enough. The ‘Aussie’ subsequently missed further gains.
Economists from Goldman Sachs Group Inc. said the support offered was unlikely to raise the country’s growth rate:
‘We’re getting easing, but it’s not quickly enough to keep up with the pace of deterioration in the broader economy. More domestic policy easing and improved growth and domestic demand is going to be key as we get into 2023.’
Pound (GBP) Faces Headwinds on Government Warnings
In the UK, various regulators and independent agencies are warning the government that time is running out to deliver a support package that will divert widespread household debt and business insolvencies.
The British Chambers of Commerce (BCC) represents UK firms. Its representatives are calling for government-funded emergency energy grants for SMEs:
Shevaun Haviland, director general of the BCC, has informed ministers that ‘the latest economic projections released since then have been worse than expected… We simply cannot afford to see another month of the same old news.’
Furthermore, the Child Poverty Action Group (CPAG) warns that families on low incomes will ‘fall through the ice this winter unless the government makes more help available fast.’ Such households are expected to face an approximate £1,000 shortfall on their energy payments.
Also calling for action is consumer watchdog ‘Which?’. The company’s director of policy and advocacy remarks that the current government support package is insufficient, having been drawn up when the energy price cap was projected to reach £2,800 in October.
The sum is now estimated at closer to £3,554 that month, and £4,650 in January 2023. Ofgem is due to confirm tomorrow what October’s new price cap will be.
GBP/AUD Exchange Rate Forecast: UK Data to Influence Trading?
Looking ahead, the Confederation of British Industry (CBI) is due to release its distributive trades report later this morning. The report will reveal retail sales volumes according to its survey for the month of August.
The UK’s retail sales balance is expected to drop further from -4 in July to -7 this month. This would reflect the ongoing impact of the country’s cost-of-living crisis. Retailers forecast that orders will have fallen in August while stock positions remain ‘too high’.
If the data prints as expected, GBP/AUD could sink lower on compounded Sterling weakness.