Dollar soars to 25-year high against pound

LUCY BATTERSBY
January 7, 2010 - 1:21PM
The more powerful AUD. Photo: Virginia Star
The Australian dollar has soared to a 25-year high
against the British pound, buoyed by stronger than
expected retail sales, as it powers ahead against most
major currencies, including the US dollar.

The Australian dollar was recently trading at 57.65

British pence - the highest exchange rate since May
1985. This is higher than last year's record of 56 pence,
and means that one British pound is now worth $1.73.

The pound was also buying $US1.60 and 1.11 euros

today, compared to an average exchange rate of about
$US2 and 1.40 euros before the global financial crisis.

The growing gap between the Aussie dollar and the

pound is caused by the different outlook for the two
economies, as well as increasing commodity prices. Natural resources including gas, coal, metal and gold significant drivers
of local economic growth.

The Australian dollar is also strong against the US dollar, currently trading at 92.36 US cents. This is less than the high of
US97.98¢ reached in 2007 but far better than the 63.9 US cents just 10 months ago.

The pound is struggling because the British Government printed £190 billion last year. That dilutes the pound's value and
could lead to inflation.

The economic outlook in the UK is also sluggish, with unemployment at 7.9 per cent and retail sales worse than economists
expected. The national economy is still contracting but is expected to grow by about 1.4 per cent this year.

In comparison, Australia's latest retail sales figures, released today, were almost five times better than economists
expected, at 1.4 per cent higher in December. The trade balance figures released this morning were also better than
economists had predicted.

With commodity prices soaring due to high demand from booming Asian economies, the outlook for Australian metal
exporters is good.

Many international investors are buying Australian dollar-denominated assets - local stocks and bonds, for instance -
because the returns are better due to high local interest rates.

Plus, the outlook for the Australian economy is brighter than it is in many other parts of the world.

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