AUD Update for January

[Guest Windsor2]

The New Year started where 2007 left off; more volatility in an increasingly uncertain market. Starting 2008 at around the 2.28 levels, the Australian Dollar continued to benefit from a weaker pound and the rates fell to just under $2.17, levels not seen for over 10 years! Only a year ago it was trading at over $2.50 to the pound, but ignoring an uncharacteristic move in August, it has been on a progressive march downwards ever since.

 

We did see a brief correction in this downward movement, as investors took some of their profits from the so called “carry trades” and this pushed the rates back up to around the 2.28 levels again. However, there was more strong data out from Australia in January, with low unemployment, strong inflationary data and very bullish housing and retail figures and thus these gains were short lived. As expected, the Dollar strengthened in the last week of January, finishing the month at around 2.18 – 2.19.

 

So how low can it go? Unfortunately this is difficult to say given the current conditions, an answer that I appreciate has been given for the last few months. The UK is looking at a possible rate cut in February in a bid to calm fears that the UK will follow the plight of the US. The RBA, however, may need to raise their interest rates in an effort to contain inflationary pressures and control their booming economy. This may well be a continuing trend until they can see domestic demand starting to suffer under the weight of a creaking global economy.

The moves we are seeing illustrate just how the markets can react and what a risky business buying and selling currency can be without the proper planning. It can be such a difficult decision deciding when to buy your currency, and whether to leave it in the UK hoping that the rate will improve, especially when it is your life savings. There are, however, ways in which to considerably reduce this risk:

The key is to address your exposure from the outset and get a strategy in place that suits you. One popular option is what is known as a forward contract, or ‘buy now pay later’ method, whereby you can lock into a rate of exchange with just a 10% deposit, for delivery up to 2 years in the future. If you had locked in at the beginning of January 07, you would have achieved around the 2.50 mark. In ’08 that figure would have been about 2.27, a massive 23 cent difference, or $56,000 on £200,000! Put into perspective, that is your new house furnishings or even a very nice new car. Even if you take the difference in January of 11 cents, that would be a potential saving, or loss, of $22,000 on that £200,000….in just one month!

The forward contract holds many benefits; you do not need all of your funds available (the majority of peoples funds are tied up in property for example), it gives you peace of mind knowing you have secured a rate and know what you are going to achieve, and it is flexible and can accommodate changes in the time scale originally agreed due to house sales falling through, etcetera.

Of course, it is always tempting to wait for a better rate and only you can decide how much of your wealth you want to expose to risk (you may decide to fix an exchange rate for half or all of your assets). For those of you willing to take a bit of a gamble, you can take out a “market order” or target rate, which is where you set a level at which you want to buy your currency. If and when this level is reached, the money is bought, but obviously it holds the risk that your target won’t be achieved so you will simply have to buy at the prevailing rate on the day.

Some people may not have the money available to them for a forward contract. The UK housing market is currently experiencing a slow down, with houses taking longer to sell, so many people will leave the majority of their funds in the UK. HiFX have an office in Sydney, which is fully ASIC regulated, and an account can be set up with them before you leave the UK making the transition as smooth as possible

For those of you who are leaving for Australia over the coming months, forward planning is of the utmost importance and could save you thousands of pounds to start your new life.

 

Thanks,

 

Richard, HiFX

[Guest Liam]

Thanks for the update Richard. Very timely!

 

Liam

[Guest michele'n'michael]

of $22,000 on that £200,000….in just one month!

The forward contract holds many benefits; you do not need all of your funds available (the majority of peoples funds are tied up in property for example), it gives you peace of mind knowing you have secured a rate and know what you are going to achieve, and it is flexible and can accommodate changes in the time scale originally agreed due to house sales falling through, etcetera.

Of course, it is always tempting to wait for a better rate and only you can decide how much of your wealth you want to expose to risk (you may decide to fix an exchange rate for half or all of your assets). For those of you willing to take a bit of a gamble, you can take out a “market order” or target rate, which is where you set a level at which you want to buy your currency. If and when this level is reached, the money is bought, but obviously it holds the risk that your target won’t be achieved so you will simply have to buy at the prevailing rate on the day.

 

So what do you as an expert recommend. Do you anticipate an upward turn within a year for those of us who may leave their money in the UK??

Help appreciated. Michele

[Guest the terry's]

Good question Michele, I'd like to know if '08 is going to be a slow year and pick up towards the later part of the year, fingers crossed.

 

Helen.

[Guest Windsor2]

Michele,

 

The problem at the moment is that the Australian economy is very strong, and the Dollar is doing very well, AND the Pound is going down....so it is a double edged sword. Australia raised their interest rates last month, and the RBA have hinted that one or two more rate hikes are a distinct possibility. On the other hand, the UK may well be forced to cut their rates again, which could further weaken the £.

 

95% of the market is moved on speculation, with investors buying and selling currency for personal gains, which makes for an incredibly risky and volatile market. August last year showed just how volatile it can be, with huge moves in just 3 days, and moves which nobody predicted.

 

Some analysts now see 2 Dollars to the Pound as a very realistic outlook before we see any uplift, and if you go back to 1996, the rates dropped to around 1.90, so it is not an impossibility.

 

I think the issue for many migrants is coming to terms with these new levels, as many of you will have started the process last year when the rates were a lot better. We hit a peak of 2.56 back in August, but that was quite a big blip in the overall trend of 2007, which was a decline from the January highs of around 2.50.

 

It is a massive drop and one that has had serious consequences for those of you moving funds across to start your new life. The question you need to ask yourselves is can i afford for the rates to go any lower? Which would you be more annoyed at; to buy now, only for the rates to go up, or not to buy now, only for the rates to fall? How much of a gamble can you take?

 

It is a question that only you can answer and will very much depend on your situation. Most people have a target rate. but also have a lower limit and try and stick to them. The trap many people fall into is if their original target rate is hitm they may get a little greedy, not change their money and then the rate drops back again!

 

I hope this helps, but feel free to get in touch should you have any more questions.

 

And good luck to all of you!!

 

Cheers,

 

Richard, HiFX.

 

p.s. once you have made the decision to change your money, then just dont look at any charts ever again!! You have what you have and you will be ready for your new and exciting life in OZ.