Pound Gains Despite UK Recession Woes

27.04.2012

Welcome to my latest update of the British pound to Australian dollar exchange rate, covering the 19th to 26th April 2012.

This is intended as a brief guide to what's affected the exchange rate in the last week, to help you decide if now is the best time for you to change currencies.

Of course, if you have any questions about transferring money to Australia, don't hesitate to leave a comment below. I'd be glad to provide an in-depth personal response to your query.

UK Pound Gains Again

The pound continued its long-term bounce back against the Australian dollar this week, climbing to its highest point since November 2011 at just beneath 1.57, in spite of widespread reports that the UK has officially re-entered recession.

This perhaps goes to show the degree of economic nervousness that has spread over Australia (and to some extent, China) in the last six months: that the currency of a nation in its worst economic state in a century can outperform the most-solidly placed first-world nation on the planet.

Looking ahead, if the pound can withstand the shock of Britain entering a double dip, it's likely to continue bouncing back against the AUD.

Australia's Embarrassment of Riches

How come the outlook in Australia is so muted then, if it's set for 3.0% growth in 2012 ahead of rivals in the UK, Europe and United States?

Well, it has to do with the growing pains that are accompanying its rapidly expanding mining sector, as well as questions about whether Chinese demand can continue to fuel this growth.

For instance, it has become increasingly clear that certain regions in Australia have just not received the benefits of the mining boom, which is concentrated in the little-populated North West area of the country.

Instead, densely populated areas in the South are just seeing the downsides, such as rising inflation, and slowing performance in manufacturing and agriculture. This has led to the perception that mining is in some respects a curse to Australia.

Furthermore, given that economists are increasingly arguing that China's period of double-digit growth is at end, there is nervousness as to whether Australia's mining boom is sustainable.

If Australian companies keep building mines that Chinese demand doesn't justify after all, that could generate a construction bubble which, when it bursts, would cause a huge headache to the Australian economy.

This appears an increasingly clear and present threat, which explains the declining Australian dollar.

Pound Gains - Looking Ahead

Looking ahead, the story in Australia looks set to remain one of increasing pessimism, in spite of the country's embarrassment of mining riches.

That could offset the UK recession as I mention, and help the pound continue to climb against its antipode cousin.

Yours kindly,

Peter Lavelle,

Foreign Exchange Specialist Pure FX

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