Pound Australian Dollar (GBP/AUD) Exchange Rate Weakens as Energy Costs Hit UK Food and Drink Industry
The Pound Australian Dollar (GBP/AUD) exchange rate has fallen today as the Australian Dollar (AUD) is lifted by a risk-on mood. The Pound (GBP), meanwhile, drops as the UK energy crisis sees pub landlords hand in notices.
At the time of writing the GBP/AUD exchange rate is £1.6948, which is a 0.11% drop from opening numbers this morning.
Pound (GBP) on the Backfoot amid Recession Worries
The Pound is trading poorly against most of its peers this morning as Sterling dropped to a two-and-a-half-year low over the bank holiday amid recession concerns.
Soaring energy prices and the new energy cap due in October are putting pressure on the UK economy. The food and drinks industry is the latest to feel the sting as thousands of pub landlords are giving in their notices, unable to keep up with rising energy costs.
Unlike UK households, businesses can’t benefit from the energy cap, leaving them exposed to even higher costs than households face.
Soaring energy costs are contributing to a darkening economic outlook for the UK. Goldman Sachs has predicted shrinking economic growth for the rest of the year and a 0.6% contraction during 2023.
In a note released on Monday, Goldman Sachs economists said:
‘Concerns around cost-of-living pressures in the UK have continued to intensify on the back of the worsening energy crisis. Real consumption is still likely to decline significantly.’
Consumer spending is down, despite credit card borrowing being its highest since 2005. The money is being used to cover household shortfalls on energy costs and food bills.
Goldman has put a date on the start of UK recession. Expected to start in the fourth quarter of the year thoughts of a winter recession have put the Pound under increasing pressure.
Overall, Goldman has downgraded its economic outlook for the UK. The bank now expects a recession to start in the fourth quarter of this year, in line with the Bank of England’s (BoE) forecasts. Worries of a winter recession have put the Pound under increasing pressure.
Australian Dollar (AUD) Benefits from Risk-On Market Mood
The Australian Dollar is trading strongly against most of its peers today as a generally upbeat one in global markets favours the risk-sensitive currency.
A decline in US Treasury yields saw the safe-haven US Dollar (USD) fall out of favour with investors, with risk-sensitive currencies like AUD and NZD reaping the benefits.
Meanwhile, energy prices are retreating from recent eye-watering highs amid news that the EU is preparing an ‘emergency intervention’. This seems to have cheered investors, thereby benefitting the ‘Aussie’.
However, the Australian Dollar acts as a proxy-currency for China, as China is Australia’s most important trading partner. As such, it’s possible that China’s impending property crash and further lockdowns are capping ‘Aussie’ gains.
Pound Australian Dollar Forecast: Will ‘Aussie’ Data Impact the Risk Sensitive Currency?
Australian data expected over the next few days could create mixed signals for AUD investors. While construction work is expected to return to growth, manufacturing activity is forecast to slow. These different triggers could see AUD waver.
In the absence of any significant UK data, the Pound will likely be driven by political uncertainty as the Conservative leadership races enters its last week. Could an unexpected victory cause volatility in the GBP/AUD exchange rate?