Pound Australian Dollar Exchange Rate News: GBP/AUD Weak as UK Energy Crisis Deepens

September 1, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Weak as UK Energy Crisis Deepens

GBP/AUD Exchange Rate Subdued amid Recession Fears

The Pound to Australian Dollar (GBP/AUD) exchange rate weakened on Thursday. The pairing has been volatile for most of the week as a bleak economic outlook weighed on the Pound.

At time of writing the GBP/AUD exchange rate traded at around $1.6940. Down roughly 0.2% from Thursday’s opening levels.

Pound (GBP) Trading Poorly as Economic Woes Grow

The Pound (GBP) traded poorly against most of its peers on Thursday as the ongoing energy crisis and deepening economic woes weighed on Sterling sentiment.

Businesses are the latest to feel the burden of soaring energy prices. On Thursday the Office of National Statistics (ONS) reported that:

‘The value of sales by small businesses in July fell 10% from the previous month, which was the largest monthly fall since April 2020 when it decreased by 24%.’

Looking at the energy crisis, economists fear that these rising energy costs, compounded by the cost-of-living crisis will be too much for UK households to handle this winter as the country hurtles toward a recession.

Lalitha Try, Researcher at the Resolution Foundation, says ‘radical action’ is needed by the next PM:

‘[A} tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying. […] No responsible government could accept such an outlook, so radical policy action is required to address it.’

This depressing news along with rising house prices and a downturn in the manufacturing industry served to keep GBP on the back foot during Thursday’s trading session.

Australian Dollar (AUD) Gains Capped by Poor Chinese Data

The Australian Dollar (AUD) strengthened against the Pound (GBP) on Thursday, but trading amongst its other peers was mixed.

The increase could be attributed to AUD investors betting on the next interest rate hike from the Reserve Bank of Australia (RBA).

The S&P manufacturing PMI for August also released on Thursday. Industrial growth slowed, in August with the index dropping from 55.7 to 53.8. This didn’t deter investors as the manufacturing industry grew for the 27th month in a row, which boosted investor confidence.

However, there were a few factors that kept AUD capped as Thursday trading continued. The Australian Dollar acts as a proxy currency for China, and at seemed to hinder AUD gains. China is the second largest economy in the world, and it is showing signs of slowing, which is worrying global investors.

The latest Chinese data shows the economy is still struggling. The Caixin manufacturing PMI showed that the industry contracted in August. Any poor news from China can potentially impact the Australian Dollar.

Commodity prices also had an impact, though likely not as much, as iron ore prices dropped. The cost of ore slipped by nearly 2.5% on Thursday, which could have impacted investors mood.

GBP/AUD Exchange Rate Forecast: Downbeat Outlook for Chinese Economy to Drag on the ‘Aussie’

Looking forward, there is a lack of data today for both Australia and the UK. This will likely mean the AUD investors will focus on movement in China’s economy and commodity prices. Will China’s impending housing crisis weigh on the ‘Aussie’?

GBP investors will likely be trading based on domestic headlines ahead of the reveal of the new Conservative party leader on Monday. Could the shift in political leadership infuse fresh volatility into the Pound?

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