Peter Lavelle - 14.06.2012
At the start of 2012, the pound put an end to its long decline against the Australian dollar, and started to climb, going from 1.46 in mid-January to 1.61 in mid-May.
Yet since mid-May, that decline has suddenly ended, and today (one month on) the pound finds itself back at 1.55 against the Australian dollar. Furthermore this looks set to continue.
The reversal in the pound's fortunes can be explained in one word: Eurozone.
In January, the European Central Bank eased nervousness about the Eurozone debt crisis when it injected some 1 trillion euros into European banks, leading to immediate confidence on the continent and UK, which is closely connected.
However, since the re-ignition of the crisis, with the recent bailout for Spain and the forthcoming elections in Greece, that confidence has evaporated. Hence the resumption of the pound's decline.
It unfortunately makes it more expensive. If a month ago you could get 1.61 Australian dollars to the pound, and today you get just 1.55, that means you need more pounds to buy a home in Australia.
In fact, it's widely recognised in Australia that the strength of its currency has had a detrimental effect on tourism and immigration.
That depends to a large extent on events in the Eurozone.
If European politicians are able to devise a permanent solution to the crisis, perhaps to prevent Spain seeking a full bailout, or to stop Greece exiting the currency, that would provide an immediate boost to market sentiment. It would also likely benefit the pound, given the UK's close proximity to the continent.
Of course, if on the other hand Europe continues to stagnate, as it has for almost two years, it's possible the pound will continue to fall.
The Australian economy is in fantastic shape, compared to almost every other developed nation on earth.
For instance, Australia holds a AAA credit rating from all 3 international ratings agencies, which is something just 7 other countries have. This is a reflection of both Australia's resilience to the Eurozone crisis, its economic strength based on mining demand from China, and its ability to repay its debts.
For you and me that means there are few better places to find a job, and keep it, without worrying so much about the future, as Australia.
I do hope this article has been helpful. If you have any other questions not answered here, feel free to get in touch in the reply box below.
Peter with Pure FX