Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered on Energy Support for UK Businesses

September 21, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Wavered on Energy Support for UK Businesses

Pound (GBP) Fluctuated on Business Support Package

The Pound (GBP) struggled to find much demand on Wednesday after the UK government announced its plans to support firms with energy bills. Two weeks after Prime Minister Liz Truss confirmed the energy bill price cap for households, a six-month plan to halve gas and electricity prices for businesses has been announced.

Despite the fiscal aid finally rolled out for struggling firms, concerns are mounting over the long-term cost of the financial support. For the month of August, the UK government borrowed far more than expected, as public sector borrowing reached £11bn. The figure is still lower than this time last year by £2.6bn, but £6.5bn more than before the pandemic.

The six-month emergency energy price cap for businesses is set to cost the government more than £25bn. But concerns are also mounting of support needed beyond the six months. Stephen Phipson, Chief Executive of Make UK, the manufacturers’ organisation, warned that the prices will remain elevated. Phipson said:

‘Industry will need support for a longer period to protect jobs and remain competitive, so the further announcement of a review on future support at the three-month stage is reassuring.’

Meanwhile, troubling news out of the Ukraine invasion has worried investors as Putin has confirmed a ‘partial mobilisation’ of Russian military ahead of the proposed referendum in parts of occupied Ukraine. In a rare national address, Putin gave his full support to the weekend referendum in Luhansk, Donetsk, Kherson, and Zaporizhzhia to join the Russian Federation.

Australian Dollar (AUD) Under Pressure amid Risk-Off Market Mood

Meanwhile, the Australian Dollar (AUD) also struggled with multiple headwinds amid a cautious Reserve Bank of Australia (RBA) and a risk averse market. The Ukraine conflict and subsequent news out of Russia is alarming investors and souring the global market mood.

The recent dovish tone struck by the RBA is weighing on the ‘Aussie’ as Deputy Governor Michele Bullock spoke at an event in Sydney. Bullock commented on whether the RBA’s monetary policy had reached a point where it’s slowing the economy, and that the board is still concentrating on balancing inflation and growth. She added:

‘I’m not sure it’s necessarily in restrictive territory yet. We’ll be looking to see whether or not there are opportunities to taper a bit and slow the pace. But we are not on a pre-set path.’

Further troubling news was that Bullock also added that the RBA reported losses of $37bn and finds itself in negative equity after losses in 2021-22, due to shoring up the Australian economy during the pandemic. Bullock added:

‘The negative equity position will, therefore, not affect the ability of the Reserve Bank to do its job.

‘While it has not sought a capital injection, the board has indicated to the government that it expects that future profits will be retained by the bank until the bank’s capital is restored.’

GBP/AUD Exchange Rate Forecast: Hawkish BoE to Bolster the Pound?

Looking ahead, all eyes will be on the BoE interest rate decision on Thursday. With many market experts predicting a 50bps rate hike, if the central bank turns dovish Sterling could take a nosedive. However, despite inflation softening, CPI remains five times above the target 2%, and the BoE have maintained their number one priority is bringing inflation back down.

Meanwhile, any further developments out of Ukraine are likely to affect both the Pound and the Australian Dollar.

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