Spanish Bailout Rumours Hit Pound to

Australian Dollar Exchange Rate

Is buying Australian dollars of interest for you? Spanish bailout rumours are affecting exchange rates.

Peter Lavelle, economic writer for PureFX, is back with news about the pound to Australian dollar foreign exchange rate, covering the 24th to 31st of May 2012.

He's looking at the past week as well as what might happen next, to help you plan if you need to change currency.

This Past Week:

The pound has lost less than a cent against the Australian dollar this past week, so that it has essentially maintained the same rate for about three weeks. This is because the fate of the Eurozone - and Spain and Greece in particular - remains in limbo.

Looking ahead, it would take an end to the Eurozone debt crisis - one way or the other - to get the pound to Australian dollar exchange rate going again.

What's Happening in Spain and Greece?

Greece is due to hold a general election in about a fortnight, which is being viewed as a referendum as to whether it remains in the euro or not. If it opts against, that could instil continent-wide chaos in Europe.

Yet Greece is but small potatoes next to Spain, where the Madrid government is itself set to receive an EU bailout package.

Given that Spain is the 12th biggest economy in the world, we're talking vast sums here: enough to destroy the fabric of the Eurozone.

What's the Worst that Could Happen?

Without aid, Spain's highly indebted banking sector could collapse.

That would produce an immediate loss of confidence across the entire global financial system, leading to banks not lending to each other, and a replication of the events of 2008 following the collapse of Lehman Brothers.

With that, the euro might topple, the European Union might topple, and the last 70 years of international cooperation in Europe come to an end, as each nation fends for itself.

Yikes! Is that Likely to Happen?

Not in the least.

Extremely powerful people know the stakes, and are unlikely to let the world go to heck in a hand basket if they can help it.

That said, as the situation in big countries like Spain grows more dire, the markets get increasingly nervous, which explains this stillness in the foreign exchange rate. People are waiting for answers.

And What's Happening in Australia?

Compared to Europe, not a great deal.

The country remains in a fantastic position comparatively, as mining investment is expected to top AUD500 billion in 2013/4. This is set to diminish after that, and yet demand for minerals from China (its biggest customer) remains a great big pillar of support for Australia.

If That's So, Why Isn't the Australian Dollar Gaining?

In part, because the AUD spent most of 2010-11 climbing, which means the huge advantages of Chinese demand have already been priced in. It could be that this is the level the AUD is meant to be at, according to market valuation.

In addition though, Australia's dependence on mining means its economic fortunes change with the price of commodities. That makes it unstable, which makes it unattractive.

Yours kindly,

Peter Lavelle at Pure FX

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