Pound Australian Dollar (GBP/AUD) Exchange Rate Softens amid Soaring UK Borrowing

Pound Australian Dollar (GBP/AUD) Dips as Energy Support Drives up UK Borrowing

The Pound Australian Dollar (GBP/AUD) exchange rate is under pressure this morning as UK government borrowing surged on energy bill support.

At time of writing, the GBP/AUD exchange rate is around $1.7841, a 0.25% drop from this morning’s opening levels.

Pound (GBP) Undermined by Surging Government Debt

The Pound (GBP) is struggling for demand this morning in the wake of the latest public sector borrowing figures. Despite the figures coming in lower than expected, net borrowing was £12.7bn, £4.2bn more than October 2021.

Government spending was boosted by £1.9bn worth of energy bill support measures. The £400 a month assistance will continue through until April. Michael Stelmach, Senior Economist at KPMG UK, said of the figures:

‘The public finances continue to face a tug of war between demand for energy support and the overarching need to balance the books.

‘As things stand, the headroom against meeting the new fiscal targets is hanging by a thread, and we expect that they could easily be missed thanks to a less favourable economic outlook compared to the OBR’s forecast.’

Further concerning reading is that the Office for Budget Responsibility (OBR) expects national debt will almost be 100% of national output in three years. A toxic cocktail of a weaker economy, surging debt interest, and welfare spending, threatens to drive up borrowing costs.

Australian Dollar (AUD) Boosted by Hawkish RBA Rhetoric

Meanwhile, the Australian Dollar (AUD) is being propped up this morning after Reserve Bank of Australia (RBA) Chief Philip Lowe gave a somewhat hawkish speech.

Speaking at the Annual Committee for Economic Development of Australia Dinner, Lowe expects the central bank to continue raising its cash rate. Lowe also commented that it was imperative that inflation is to be tamed swiftly before it becomes too embedded. Otherwise, the economic damage would be far greater than in the 1980s and 90s. Lowe commented that the RBA is leaving all options on the table, including a return to 50bps rate hikes. Lowe added:

‘The board’s priority is to return inflation to target over time. It is resolute in its determination to make sure that this current period of high inflation is only temporary.’

Capping any further gains for the Australia Dollar, however, is further concerning news out of China. More than 28,000 new Covid cases were reported in China as Beijing announced it will be closing parks and museums.

Pound Australian Dollar Exchange Rate Forecast: Manufacturing and Service Sector PMIs to Sour the Aussie?

Looking ahead, the Pound Australian Dollar exchange rate could see a reversal of fortune later this evening as manufacturing and services PMIs are set to print. An expected further contraction in both industries could weigh on the Australian Dollar.

Meanwhile, data remains thin on the ground for Sterling, so domestic woes are likely to continue influencing trade.

Danny Tingle

Contact Danny Tingle


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