UK Recession Blues Boost the Aussie Dollar

Peter Lavelle - 27.07.2012. Here's the Pure FX account of what's happened with the Australian dollar this week.

And that's a hefty knock on the chin for George Osborne! The Australian dollar has raced up to 0.66 against the UK pound this week, its highest point since March 15th, as the UK contracts a disastrous 0.7% between March-June.

That of course is an indictment of the UK Chancellor's performance, and today Mr. Osborne faces intense pressure to hand the keys of the Treasury over to someone else.

What exactly lies behind this ramshackle performance? Well, part of the blame must be laid at the feet of Her Royal Majesty, Elizabeth II.

It was her Jubilee (celebrating sixty years of her reign!) that led to an extra Bank Holiday being declared in Britannia, which of course meant everyone did a lot less work. That's meant to have knocked -0.5% off GDP.

(I am of course joking that we should blame the Queen.)

In addition, the torrential rain has also come in for criticism. It was supposedly the wettest March to June since records began this year, which of course made working outdoors about as likely as Price Charles winning a gold medal.

That was a big fat spanner in the works for UK construction in particular, which, as a result, shrank 5.2% these past three months. Not a good time for hard-hatted folks, in other words.

But, for all that, it's nonetheless recognised that Jubilee holidays and partial flooding can't take all the stick. Mr. Osborne himself has admitted these things are "not an excuse."

After all, the UK also shrank in the two quarters before this, so it's not as if Britain would have expanded if Queeny had celebrated sixty-one years on the throne, for instance, instead of sixty. There's a deeper problem here.

That's why the markets scarpered from the pound in light of these figures. It was a case of "Well, I thought the UK was a safe place to park my cash during this Eurozone crisis, but with growth like this? I ain't so sure now!"

Indeed, the Australian dollar wasn't the only currency to come out aces high against the pound, with the New Zealand dollar and euro also taking back ground. It was an across-the-board wipe out for sterling.

Will the pound continue to lose out? To be honest, I think there are reasons to think otherwise.

For instance, taking this UK contraction out of the picture, the pound has climbed against the Aussie for almost four months on the trot. That's because the Australian dollar is like Henry VIII after Christmas dinner: it can't swallow any more right now. That's because, after half a decade of gains, the Aussie dollar just can't find the momentum to climb higher.

So the UK pound had a bad week. That's okay. I think it'll soon pick itself up, which will make it cheaper if you plan to emigrate to Australia.

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