Bank of England rates now 1.5%
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The Bank of England cut rates by 50 basis points to 1.5% in what is becoming the worst economic slowdown since the Great Depression of the 1930s.
The UK has been harder hit than most amid a dramatic slowdown in consumer spending, negative economic growth and falling housing prices.
AUD Currency continues to struggle
The Australian dollar continues to struggle today currently selling for 67c against the USD at the time of writing. The fall in the AUD has been dramatic after peaking around 97c in late July the AUD hit a low around 63c on last week.
The AUD fall has been dramatic and was not something envisaged in June or July when the USD was heavily under pressure and the AUD was looking like meeting parity to the USD.
How quick times change as the world economic crisis took hold and investors started heading for the exits the AUD was smashed. The Australian dollar has risen in recent years on the back the growing economic prosperity of Asia, in particular China which Australia has been a recipient of their amazing economic growth.
The mineral boom was a huge driver in what was seen as a miracle economy and the high interest rates on offer drove inflows into the AUD.
The question for most Australian’s is how far can the AUD go? This is not an easy question to answer as investors have become very negative towards the Australian economy and funds have flown into the safety of the USD.
The ongoing expectation of further rate cuts by the RBA continue to put pressure on the currency as further rate cuts over the remainder of 2008 have been built into money markets.
While a falling AUD is not good for Australian’s travelling overseas it could be seen as a boom for international tourists to our shores and also exporters. The only problem with this is travel is dramatically down around the world due to the economic crisis and consumers have cut back spending.
Next to rise will be consumer goods such as electrical equipment that has become as much as 30-40% cheaper due to the previously high AUD. With imports like to rise dramatically this will all put pressure on inflation.
The double whammy in 2009 could be rising inflation due to the falling AUD at the same time as falling domestic and global growth pushes the RBA to cut interest rates further which exacerbates the AUD fall as funds flow out of Australia.
It should be noted the RBA expect the inflation rate to fall but if it does not and inflation still hovers around 5% or even increases then Australia could be heading to a disastrous situation.
What do you think will happen in 2009? Share your thoughts through our comments section.