The AUDGBP exchange rate started the week higher as the pound sterling was hit by a crisis in gas supplies. A fire at a key import station last week has put the pound under pressure ahead of the Bank of England’s rate meeting this week. The Aussie dollar also had minutes of the latest RBA interest rate meeting to analyse on Monday but the Asian markets are sweating over the fate of the Evergrande conglomerate.
The AUD to GBP exchange rate is now back above the 0.5300 level and will try to mount a recovery.
UK government could be forced to bailout energy firms
UK Ministers are looking at fresh measures to protect consumers from a “cost of living crisis” amid the energy crisis, the Business Secretary has suggested.
Kwasi Kwarteng insisted that there was “absolutely no question of the lights going out” this winter as the UK has enough capacity to meet demand despite some energy suppliers going bust.
But UK taxpayers could have to foot the bill with state-backed loans being considered to keep the industry afloat, and emergency talks being held with producers of CO2, which is vital for many food and drinks products, that have halted operations after a surge in gas prices.
The Government is said to be close to agreeing deals worth tens of millions of pounds with companies to rescue them from collapse. The deals are expected to take the form of low or zero interest loans backed by taxpayers and could involve the Government taking a stake in the energy companies.
The problems could also affect the country’s current account deficit, according to a Deutsche Bank analyst, who said:
“This would represent a moderate widening of the UK’s current account deficit, which stands at just over 3% of GDP over the past four quarters. To be sure, our estimate likely represents an upper bound, but at the least it suggests that the gas price increase will be worth monitoring over coming weeks”.
RBA minutes released but Evergrande fears mount
Shares of Chinese conglomerate Evergrande plunged as much as 19% on Monday with the group weighed down by over US$300 billion in debt, again warning that it could default.
There are growing fears for the Chinese property industry and property developers account for around 50% of China’s steel demand, which would explain the 20% drop in iron ore prices last week.
Compounding the impact, markets in mainland China, Japan, South Korea, and Hong Kong are closed at various stages of this week, celebrating national holidays, which means liquidity has and will be patchy at times.
The RBA minutes had little surprises for traders with governor Philip Lowe stating last week that the market’s expectations for an early rate hike were unfounded with the central banker committing to 2024.
“These expectations are difficult to reconcile with the picture I just outlined, and I find it difficult to understand why rate rises are being priced in next year or early 2023,” Lowe said.