The Australian Dollar surged to an 11 year high against Sterling in April after Australian consumer price inflation rose to its highest level since 1991 and Sterling continued to come under pressure from the effects of the credit crunch. The sharp decline from the beginning of the month came as the Bank of England cut interest rates to 5% as they battle with slowing growth and the falling housing market. House prices fell 2.5% in March, according to data released by the Halifax, inviting parallels with the 1990’s housing slump.
For the last few weeks the £ vs $ rates have been in a range between about 2.07 and 2.15, and it will be interesting to see what stance the RBA take on economic policy. The rising inflation signals that they may need to continue with their strategy of putting up interest rates, whereas some feel the issues in America could spark a global recession and the Australians may yet feel more of a pinch from the credit crunch.
Where to next is the million dollar question? There is some speculation that we could see some consolidation towards $2.20/2.25 as the downward momentum of the last few months eases, but such is the current uncertain climate the rates could just as easily fall back to the psychological $2.00 mark.
The problem is nobody really knows! The decision on when the right time is to move your funds across to OZ can be such a hard one given the drop in the exchange rates over the last 18 months but the more information you get at this stage the easier your decision about when to buy will be. Many peoples decision will be out of their hands as it depends on when their house sells, but you don’t need all of your funds available to fix a rate of exchange. A “forward contract” is a buy now, pay later option whereby you fix a rate with just a 10% deposit, and then agree a date to pay the remainder, which can be up to 2 years in the future. This delivery date is also flexible, and can be rolled on at no extra cost which is extremely useful in light of the current timeframes for selling houses!
Some clients choose also to adopt a hedging strategy by fixing some of their currency now to protect themselves against a drop in the rates, but also giving them the opportunity to take advantage of any upturns in the market. Perhaps send it over in 2 or 3 lumps, thus spreading the risk a little bit, and using a “market order” (which is essentially an automatic buying tool at a predetermined rate) in an attempt to achieve any spikes in the rate.
With interest rates currently at 7.25% in Aus and 5% in the UK, the return is obviously better Down Under, and something to consider when doing your sums and making the decision into when to move your funds over. The decision is a very personal one, however, and there is no “right” time as it greatly depends on your own situation. Would you be more upset if you bought your funds now and the rate went up, or held off buying them and the rate went down? How much can you afford to gamble?
Learn about the different ways of moving your funds and how to maximise the amount of Dollars you start your new life with. There is no cost nor obligation to speak to the experts and talk through your situation, so even if you don’t send any funds across for the next year then you have lost nothing, and will have gained a much greater understanding of the markets and how they are affected.
Hope this helps, and good luck to all of you who are moving this month!
Thank you Richard for taking the time to give us all an update and remind us of our options.
It's not an easy decision and one I'm sure that will give many of us something to puzzle over for possibly quite sometime to come.
I'm sure your information will help us to make more of an informed decision one way or the other.
I do suspect that most will sit this one out for a while and see which way the rate goes.
Cheers,
Steve.
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I think you could be right, and I have some good friends who are just in the process of moving down to Sydney and moving their funds so have been asking me what they should do. They have told me they will hold me fully accountable if I give them ill advice!!
I am also planning on making the move in the next 12/18 months, and so it is very real to me as well. Very difficult decision, and everyone will have a different view on the market and when to transfer their funds. The best advice I can give at the moment is simply to start following the rates and exploring the different options, because it is life changing amounts of money that you will be moving and obviously want to get it right!
I know this is easier said than done, but do try not to look at the rate once you have bought your Dollars!! Ok, who am i kidding.....once you start following the rates, stoping is harder than giving up smoking!!
