Readers Question: Do you have any predictions for the AUS$ against the GBP in 2009? Thanks
Both, the Australian and UK economy faces a year of uncertainty and sluggish growth. It is really a question of which will be weakest. However, I think the Australian economy and currency will be hit harder than many in Australia would like to believe. I think this could drag the Aus $ lower, even against the weak £ sterling.
In past years, the Australian economy has been outperforming many others such as UK, US and Eurozone. However, I think this masks underlying problems.
- There has been a shrinking in the manufacturing base.
- Strong economy has been based on the demand for commodities. Increasingly, Australia’s strength is dependent upon demand from China and Asia.
- The growth in demand for commodities has squeezed other areas of the economy as resources have been funnelled into mining. This, however, makes the Aus economy more vulnerable to swings in the price of commodities and fortunes of China / Asia.
There is a good article here about the vulnerability of an unbalanced Australian economy.
I also feel that the Australian housing market is vulnerable. Like many other countries, house prices have risen faster than incomes, but, unlike the UK, Australian house prices have not yet fallen. When they do, it will slowdown the Australian economy.
In 2009, the Australian economy will slowdown. This will lead to lower interest rates and lower demand for the currency. Commodity inflation is also slowing as global demand slows down. This will push the Aus $ lower
So in 2009, you have 2 weak economies – the UK and Australia so it is hard to say which will be the strongest. However, the Pound has already weakened in anticipation of a recession and lower rates. The Australian dollar could become weaker in 2009.