brissybee

British press today suggests double dip recession is well on its way in the UK.

For those who understand money matters... I'm wondering what that will mean for the exchange rate - AUD to GBP?

Anyone?

commonwealth

blame Europe...

brissybee

I don't care who's fault it is... I just want to know how many pence I'm gonna get for a buck.

slapphead_otool

Economics is like water in a pond. It is the fluid flow of money (or even effort) to and from multiple locations.

given this, you cannot say what a UK recession will do to the exchange rate without knowing the other pieces in the puzzle. The state of the Euro, the inability of the USA to bring its borrowing under control, China, oil prices and instability in the Middle East and Australia's own ability to manage its economy would all play major parts in what would happen.

It also depends to what extent and to how long the UK went into a recession, and how the government handled it. A short term small recession might actually push the pound up against the dollar, whereas a big long one would cause further loss of confidence in sterling.

The short answer = no one knows. Buy gold, or buy cheap.

calliope

Long term is impossible to say but short term another recession in Britain is not going to make the pound more valuable, so look at it that way.

koalakim

If there is another recession in the UK there they'll probably keep interest rates low and therefore not attractive to currency investors. That's why the A$ does well because they get a good return on their investment. The Govt will keep the pound low to encourage exports and help the balance sheet. So, unless interest rates rise in the UK then the A$ will have the upper hand. The A$ might go down because of other forces but I doubt we'll be seeing a good exchange rate for a while.

Now my money's over here I'm happy with it as it is, well until pension time.....

Turban Explorer

I'm unsure. The pound is obviously undesirable but the events in Europe are likely to have a whopping big negative impact globally - already Rio Tinto have said their commodities buyers are 'cautious' - the AUD could start seeing selling pressure too. There isn't a good currency - just the one that isn't getting hammered on the day. I reckon we'll see 1.7 soon as a slowdown in Oz is factored in and money flows to the US$ as a safe haven.

renth

I reckon gold and silver will go up too, after a beatdown with all the commodities - giving people a chance to get it at a discount.

After that.... TO DA MOON!

...and I can retire.

slapphead_otool

I think Australia will do ok. Unlike transient wealth engines like banking and manufacturing, minerals sit in the ground like gold in a vault.

The UK might have to be very responsive to change, especially if the proposed Tobin tax gets pushed through. That might impact its banking sector, which accounts for up to 30% of GDP.

I think the AUD will stay strong for quite some time.

GarryP

Its long been recognised that the global economy is going to go into another recession. Different individuals have different reasoning for this, but the expectations are fairly consistent and the GFC I impacts on sovereign debt are expected to produce GFC II at some point.

As such, and as normal, Australia's position is heavily dependent on the fortunes of China. Recently commentators have been trying to say that they think China would escape negative growth, but the reaction of the markets to bad news (eg risk) says otherwise - people expect China to go down this time.

What does that mean for exchange rates?

Well in general a recession in Australia will force the government into using its remaining weapon, lower interest rates, to support the economy. They still have this option (unlike most) so will use it early. In general that will mean exchange rates rebalance to their historic levels with roughly the speed with which they unbalanced last time. This will also make Australian exports cheaper, a win-win for the government.

In specifics, however, is the question of Europe. My guess is the northern european countries will cut the southern adrift, bailing out their domestic banks as the debts go bad. That's kind of being priced in already if you look (france). As such although UK export markets will be hit, it might not be too bad for the UK - meaning £2.4:$1 as TSHTF. However if things go wrong in the UK (and debt levels are high) then it could go in the opposite direction swiftly.

Best to remain fluid and able to move your money as the wind blows. And hope that no election is called in Australia in the foreseeable. Swann has some confidence in the market, Abbott's minion (Robb is it?), not so much.

asprilla

Haven't you heard? past performance is not indicative of future performance.

slapphead_otool

I think that is a very good point. Past performance and strategies are pretty much worthless here - this is a whole new ball game and no one knows what will happen.

Turban Explorer

I think it's going to get very ugly in Europe and the UK but in the meantime the flight to quality will put pressure on the AUD - short term only. The danger in Europe is now looking apoplectic! The UK can't avoid the fall out even if it's banking system remains intact.

chris955

I'm just glad I live in my own little world

Amazulu

It's called Bizarroland