Pound Australian Dollar Exchange Rate News: GBP/AUD Rebounded on £40bn Energy Aid Package

September 6, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Rebounded on £40bn Energy Aid Package

Pound (GBP) Firmed on Imminent Support Package

The Pound (GBP) finally regathered its strength on Tuesday as newly appointed prime minister Liz Truss announces her first course of action as Boris Johnson’s replacement.

Reports of a substantial relief package aimed at businesses is set to be announced. A £40bn support package is being prepared to help UK firms with surging energy costs, as many fear closing due to the insurmountable pressures. Bloomberg’s Alex Wickham reports that the new prime minister will have two options to lower energy prices for businesses. He said:

‘Truss is considering two options, either setting a guaranteed unit price that businesses will pay, or a percentage or unit price reduction that all energy suppliers must offer firms.

‘The government would agree to reimburse energy suppliers for their losses and the price of energy charged to businesses would be reviewed quarterly. The policy will be announced this month, and the aim is to implement in October.’

GBP investors are hoping swift action will be undertaken to allay some of the cost-of-living pressures weighing down on the UK economy. If energy price pressures can be relieved, for both businesses and households, then the economy could look towards recovery.

However, despite a substantial financial support package, the threat of a looming recession still remains. Dame Clare Moriarty, Chief Executive of Citizens Advice, warns that the cost-of-living crisis is worsening, and the full inflationary pressures are yet to be felt. Moriarty explains that people are already losing access to gas and electricity, and Citizens Advice have heard from more than 13,000 people who are unable to top up their pre-payment meters. She adds:

‘We’re seeing record levels of people who can’t top up pre-payment meters, in what has been the joint-hottest summer ever recorded, so people aren’t using gas and electricity for heating.’

Meanwhile, retail sales in the month of August increased 0.5% YoY, slowing from July’s 1.6% growth. With the cost-of-living crisis worsening, and household spending being reined in, August’s data reveals a significant drop off in clothing sales. Helen Dickinson, Chief Executive at the BRC, said:

‘While inflation in retail prices is lower than general inflation at over 10%, this still represents a significant drop in sales volumes. For the first time in recent months, clothing sales were sluggish as summer events ended, and parents held back on back-to-school spending.’

Australian Dollar (AUD) Wavered Despite Fourth Consecutive Bold Rate Hike

The Australian Dollar (AUD) failed to inspire much movement on Tuesday despite the Reserve Bank of Australia (RBA) raising interest rates by 50bps. Following the central bank’s decision, the RBA said that it fully expects to increase the rate further, as the interest rate now sits at 2.35%, the highest since January 2015.

As markets expected a 50bps rate hike, the fourth consecutive month of aggressive hiking, the ‘Aussie’ struggled to find much demand against its rivals, possibly because the rate hike was already priced in. The RBA remains committed to tackling inflation but listless moves in the Australian equity market and a potentially cooling household spending.

GBP/AUD Exchange Rate Forecast: Australian GDP Growth to Boost the Aussie?

With data remaining thin on the ground for the rest of Tuesday’s session, investors will be looking towards GDP growth rate for Australia. An expected expansion in both MoM and YoY figures will likely bolster the Australian Dollar.

Meanwhile, any further development around Truss’ financial support packages could see the Pound edge higher.

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