GBP/AUD Trades Quietly as European Session Closes
(Updated 16:45, 21/09/2022) The Pound Australian Dollar (GBP/AUD) exchange rate lacked any decisive momentum towards the end of Wednesday’s session, as UK headwinds capped further gains for Sterling while the prospect of a nuclear war with Russian prevented the risk-on ‘Aussie’ from climbing.
In addition to the big stories of the day – energy support for UK businesses, geopolitical pressures and larger-than-expected UK government borrowing – GBP sentiment was also subdued by evidence of households struggling to cope with inflation. The latest Money Advice Trust report shows that nearly 11 million people are now behind on their bills and a new survey revealed above 5 million have gone without food in the past three months.
Furthermore, political sentiment compounds Sterling volatility regarding the Bank of England (BoE)’s interest rate decision tomorrow. Policymakers are being urged to condemn the lifting of the cap on bankers’ bonuses, in light of its previous recommendation of wage restraint, with GMB union members addressing Andrew Bailey:
‘Will you denounce these plans for uncontrolled banker bonuses as a risk to inflation? Our members know that inflation is being driven by energy prices, profiteering and supply chain disruptions, not pay.’
Original article continues below:
Pound Australian Dollar (GBP/AUD) Trends Up Marginally on UK Tailwinds
(Updated 15:10, 21/09/2022) The Pound Australian Dollar (GBP/AUD) exchange rate has ticked up slightly this afternoon as Sterling enjoys some support following an announcement that energy prices will be capped for UK businesses, charities and public sector bodies. Price caps will apply to contracts signed after April 1st this year, running from 1st October to 31st March 2023.
The department for Business, Energy and Industrial Strategy (BEIS) observe that the package is ‘equivalent’ to support provided to households, which was announced almost two weeks ago. Prime Minister Liz Truss claims the scheme will provide ‘certainty and peace of mind’, while Chancellor Kwasi Kwarteng adds: ‘with our plans to boost home-grown energy supply, we will bring security to the sector, growth to the economy and secure a better deal for consumers.’
Not everyone is impressed, however, as business leaders contemplate the possible effects of support measures ending in 6 months’ time. The Institute of Chartered Accountants in England and Wales (ICAEW) said: ‘we hope the government continues to respond flexibly to provide support where needed, otherwise firms will face a cliff edge in six months’ time which can only mean price increases and real threats of company failures.’
Such warnings cap gains for the Pound, which trades at A$1.7011 at the time of writing. Original article continues below:
GBP/AUD Exchange Rate Wavers ahead of Fed Policy Decision
The Pound Australian Dollar (GBP/AUD) exchange rate is trading in a narrow range this morning as market mood is bearish ahead of the Federal Reserve Bank’s interest rate decision. As the central bank for the world’s largest economy, the Fed’s decision may put pressure upon other central banks to tighten monetary policy faster.
At the time of writing, GBP/AUD is trading at A$1.7003, virtually unchanged from today’s opening levels.
Pound (GBP) Tumbles on Multiple Headwinds
The Pound (GBP) is weakening against its peers today, pressured by UK policy plans and geopolitical headwinds.
Analysts at ING bank believe Sterling could trend lower still in some exchange rates, as responses to the UK’s new fiscal policy are mixed.
Economists note that while ‘recent reports that government may push for tax cuts may ease some concerns about the clouded UK economic outlook’, such news could also ‘fuel doubts about the sustainability of expansionary fiscal policy while delivering a mammoth energy bill support package.’
The Truss government has already come under fire recently for its vagueness regarding how energy support measures will be funded, with some worrying that taxpayers will ultimately be footing the bill.
Greater-than-expected borrowing figures for August foreshadow a period of increased government debt, inspiring little confidence. Debt interest payable hit £8.2bn last month: the highest figure for August since records began in 1997.
Elsewhere, Russian President Vladimir Putin has announced a ‘partial mobilisation’ of troops, claiming that the army is facing ‘the military operations of the collective west’ in Ukraine. Putin added that nuclear blackmail had been used against Russia, in statements from senior representatives of NATO countries.
The news has shaken markets, increasing volatility – but reporters in the UK and Europe have framed Putin’s address in a positive light, capping headwinds. The UK’s defence secretary Ben Wallace says:
‘President Putin’s breaking of his own promises not to mobilise parts of the population and the illegal annexation of parts of Ukraine are an admission that his invasion is failing.’
Australian Dollar (AUD) Struggles to Extend Gains Against Peers
The Australian Dollar (AUD) is trending in a mixed range today, succumbing to pressure from risk-off headwinds and dovish commentary from the Reserve Bank of Australia (RBA).
The Antipodean currency is likewise affected by the news from Russia, which contributes toward a bearish market mood and consequently depresses risk sensitive assets. Also keeping investors on edge is the prospect of a 75bps interest rate hike from the Fed this evening.
Amid increasingly dovish rhetoric from the RBA, persistently hawkish rate hike moves from the Fed indicate central bank policy divergence, weighing upon the ‘Aussie’. In a speech given early this morning, Deputy Governor Michele Bullock said:
‘Policy is not restrictive as yet, [but the bank are] looking at opportunities to slow hikes at some point.
[We are] concerned about the health of China’s economy; the zero Covid policy and it’s property market. [The] outlook for the global economy is quite worrying.’
GBP/AUD Exchange Rate Forecast: UK Data to Influence Trading?
Looking ahead, industrial trends data from the UK could affect GBP/AUD later this morning, as a reading from the Confederation of British Industry (CBI) is expected to print at -11 from -7 in August.
Such an outcome would mark the second decline in industrial output since April 2021 amid rising prices, supply chain bottlenecks and operational delays.
Later in the session, the Fed’s interest rate decision is likely to inspire movement in currency markets, potentially buoying the US Dollar (USD) and consequently pressuring the ‘Greenback’s’ rival currencies.