John from Moneycorp

The Pound vs Australian dollar

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Hi everyone

 

This thread will provide updates on the pound and Australian dollar. A round up of the latest news from the past weak is below.

 

In an unusually quiet week the biggest half-dozen currencies moved by less than 1% against one another. Sterling covered a range of one and a half cents against the Aussie, strengthening by three quarters of a cent.

 

The Australian economic data were a mixed bag, with rising new home sales, private sector lending steady and AiG's performance of manufacturing index for October slipping further into the contraction zone at 43.6. It has been below the 50.0 boom/bust dividing line since April.

 

Thanks

 

John

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Even though some poor data has been released showing signs of a slowdown in economic growth in Australia, the Aussie dollar has demonstrated its resilience following an interest rate cut.

 

Latest news is that the Reserve Bank of Australia (RBA) cut interest rates to 3% - this decision was widely expected therefore the impact has been little to the exchange rate. The perception is that the RBA is being very active in trying to stimulate growth after some recent subdued data from Australia.

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Hi all – as we approach the end of 2012, we have written a review below on the Australian dollar - thanks

 

The Australian dollar is still overvalued. In his December monetary policy statement Reserve Bank of Australia (RBA) Governor Glenn Stevens bemoaned the situation, saying; "the exchange rate remains higher than might have been expected". However, the overvaluation is less than it was a year ago. Although it is impossible to be precise about such things, the consensus is that the dollar is about 10% too high. At the end of 2011 that number was more like 15%.

 

In the last year and a half the sterling/Aussie exchange rate has gone nowhere. Over the last 12 months the pound has been stuck mainly between $1.48 and $1.58, only rarely venturing outside that channel. In February it looked for a moment as though the AUD was gearing up for another great leap forward but the following three months saw it fall by 10%. In all there were four significant changes of direction during 2012 yet in mid-December sterling was unchanged against the Aussie from its position 12 months earlier.

 

That lack of net movement is not as unusual as it might appear. The pound is also unchanged from its levels a year ago against the Swedish and Norwegian crowns and the Canadian dollar. Against the US dollar sterling has strengthened by 2.5% over the year and against the euro by 4.5%. Even those are relatively modest shifts when viewed against the background of history.

 

Lower commodity prices are partly to blame for the Australian dollar's stalled progress. The price of iron ore peaked in February 2011 and has since fallen by 40% in AUD terms. Australian interest rates have also played a part. For most of last year the RBA held its benchmark Cash Rate at 4.75%. It lowered that to 4.5% last November and reduced it further this year. The most recent cut, in December, left the Cash Rate at 3%. Although analysts do not expect any further reduction, 3% is the lowest Australian benchmark interest rate in half a century.

 

Investors also have issues with Australia's domestic economy. New home sales have fallen steadily in the last couple of years and house prices have stalled. Business confidence is weak. Retail sales are flat.

 

But the economy is still growing. It expanded by 0.5% in the third quarter of 2012 and by 3.1% in the 12 months to September. Australia also still has the best possible credit rating. It is one of only a dozen countries to retain a full hand of AAA ratings. Couple that with interest rates based on a 3% benchmark, the highest in the developed world, and the Australian dollar is by no means unattractive to investors.

 

Whether that attraction will be enough to send it higher in 2013 is a different question. The Aussie's performance against the pound next year could depend more on what goes on in Britain than on what happens in Oz. If the UK economy can get back into expansion mode sterling could move higher. But if Britain cannot relax its grip on recession it is hard to argue against a stronger Australian dollar, overvalued or not.

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Happy New Year everyone.

 

Due to the festive break, there has been little economic news coming out of Australia and the UK.

 

The Aussie has been under some pressure recently because of talks in the US about their tax and spending plans to reduce their deficit (“fiscal cliff”) - these plans relate to spending cuts and an increase in taxes. Overnight, in the US House of Representatives, a bill was agreed to avoid the fiscal cliff. Any major news which comes out of the US usually has an impact on global confidence and with it the Australian dollar.

 

This morning, some positive data released in the UK - PMI Manufacturing data showed growth in December and this was against expectations.

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Over the past week, the Australian dollar strengthened by a quarter of a cent against the pound and by one cent against the US dollar. Against the New Zealand dollar it was down by three quarters of a cent.

 

Both the Aussie and the Kiwi dollar were helped by news from Japan. The new government there announced another package of stimulus, this one worth ¥10.3 trillion (£72bn). Investors believed it would mean more orders for Australian exports.

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Sterling is weak at the moment due to worries ahead of fourth-quarter growth data – this is reflected in the current pound/Aussie dollar exchange rate.

 

There is a lot of concern over whether the UK is heading towards another recession - the risk of a downgrade to Britain's triple-A credit rating is also adding to the worries over the UK economy.

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Sterling has slumped to a six month low against the Australian dollar. The British pound has continued its New Year downward path against the ‘Aussie’ dollar.

 

Why?

 

There are mounting fears that the UK’s economy contracted during the 4th quarter of 2012. Clearly the risk of a return to recession enhances should the first three months of 2013 show no signs of improving growth prospects.

 

Australia’s currency on the other hand has shaken off the recent unexpected rise in the nation’s unemployment rate. Global investors have instead remained more focused on Australia’s all important trade relationship with its largest partner China, who recently delivered an initial 4th quarter Gross Domestic Product result highlighting an annualised growth rate improvement to 7.9%.

 

Australia’s growth prospects should be further enhanced as its second largest trade partner, Japan, looks to expand monetary stimulus measures certainly by 2014, but perhaps far sooner.

 

This Friday’s first release of the UK’s Gross Domestic Product performance for the 4th quarter from the Office for National Statistics will help define the short to medium term direction of this currency pair.

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Yet more bad news for the UK this morning – figures released show the UK economy shrank in the last 3 months of 2012.

 

The Office for National Statistics (ONS) said the economy contracted 0.3% in the October to December quarter. The economy had grown by 0.9% in the previous quarter.

 

There are worries that the UK economy could re-enter recession.

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The Australian dollar was unchanged on the week against sterling. Against the US and NZ dollars it lost a cent. The damage was done by lower-than-expected inflation figures. In 2012 consumer prices increased by only 2.2% instead of the 2.4% predicted by analysts.

 

Investors fancy that the softer inflation readings will give the Reserve Bank of Australia room to cut its benchmark interest rate if it believes the economy needs a boost.

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There has not been too much news over the past week but key highlights are below.

 

The Australian dollar did slightly better than the pound, strengthening by a third of a cent in a week shortened by Monday's Australia Day holiday.

 

The Aussie's big break came with Friday's stronger-than-expected US employment report. As well as helping the Greenback, the data also sent the Canadian, Australian and New Zealand dollars higher.

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It was a bit of a struggle for the Australian dollar last week, as it was for the other commodity-related currencies. The Aussie lost a cent and a half to the US dollar and two and a half cents to the pound. It was almost unchanged against the New Zealand dollar.

 

Underlying its relative weakness was the renewed nervousness of investors about peripheral Europe and their consequent reluctance to become any more involved with "risky" currencies. Allegations of corruption in the Spanish prime minister's office and a resurgence in the electoral popularity of Silvio Berlusconi in Italy gave rise to concern about changes of government that could mean the abandonment of deficit-reduction measures and a re-escalation of the euro zone sovereign debt crisis.

 

Sterling and the US dollar both benefited from this change of emphasis but the pound had an extra advantage. The Bank of England governor-designate made clear that he did not believe it would be a good idea for the Bank to move away from targeting inflation. Investors were relieved to hear it and so was the pound.

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The Australian dollar is strong due to good consumer confidence numbers released this week – this has helped the Aussie against the pound.

 

Currently, there is very little or no good economic news coming out of the UK.

 

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The Australian dollar remains very strong against the pound – the Reserve Bank of Australia (RBA) suggested it might be done cutting interest rates for now.

 

The RBA also played down the risk of currency market intervention saying that while the Australian dollar is overvalued it did not need action yet.

Edited by John from Moneycorp

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The Australian dollar remains very strong against the pound.

 

So far in 2013, after the yen, the pound is the second-worst currency performer in the developed world.

 

As we know, the Australian economy is very strong in comparison with the UK - Australia hasn't experienced a recession in 21 years.

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Guest Jamie

Thanks for this info John, we are moving in May to Adelaide and will be looking to transfer money but may keep some in the UK and hope the pound strengthens again and then transfer more then so we get more Dollars for our money, do you think the pound will become stronger against the dollar in months to come?

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Hi Jamie

 

At the moment, there has been little or no good news to come out of the UK - for the pound to pick up and strengthen, there will have to be signs, and data released, which shows the economy is on the road to recovery. Additionally, currently, there is no news to weaken the Australian dollar.

 

In order to maxmise your money transfers, it is worth exploring the different ways you can buy your currency, click here for more info - http://moneytransfer.pomsinoz.com/various-ways-to-buy-currency.html

 

Happy to discuss your situation in more detail via private message.

 

Thanks

 

John

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Guest guest8040

Hi John I have similar concerns moving in 5 weeks - could I also have a chat privately?

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A brief review of the past week is below.

 

The Australian dollar fared better than sterling but the difference was just a quarter of a cent.

 

Helping the Aussie were figures showing a 71.5k increase in the number of people in employment, eight times as many as forecast.

 

Sterling's leg up came from the Bank of England governor, who was uncharacteristically upbeat during a TV interview. He said "recovery is in sight" and implied that the pound had fallen far enough.

Edited by John from Moneycorp

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A little review of the past week below.

 

The Aussie and the pound are unchanged against one another. Sterling covered a range of one and a half Australian cents without ever really threatening to head off in either direction.

 

Analysts cannot work out whether or not the RBA's 3% Cash Rate has further to fall but with it at that level for now, and with a triple-A sovereign credit rating, investors remain comfortable with the Aussie, overvalued or not.

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Some good news for the UK!

 

The economy has avoided falling back into recession. The Office for National Statistics preliminary estimates have been released this morning for gross domestic product (GDP) – it showed the UK economy grew by 0.3% in the first three months of the year.

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The Australian dollar has weakened recently against the pound.

 

This is mainly down to the following - poor data released in Australia (disappointing building approvals figures), plus US stocks and commodity prices have weakened.

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