AUD Update March 08 - what's happening with the rate?

[Guest Windsor2]

It’s been another testing month for Sterling. Although interest rates were kept the same at 5.25%, the Bank of England minutes kept outlook lower with future cuts possible. House prices are again showing signs of more slowdowns with the RICS house price balance dropping for the seventh month in succession signalling more than half a year of negative market sentiment.

 

Australia is still booming, and the continued strong employment growth has eased concerns that recent interest rate hikes (to 7.25%) are harming the economy. But despite this continuing strength, prolonged global equity declines prompted renewed risk aversion this month, with speculators withdrawing their funds from commodities such as gold and minerals (key exports), resulting in the $AUD going above $2.20 for the first time since the beginning of February. This was an improvement of over 10 cents from the lows at the start of the month, giving migrants some long awaited good news!

 

So does this mean that the downward trend has now stopped? Not necessarily, as it could just be a corrective adjustment and we have already dropped back to around the $2.17 levels, but it is very hard to tell where it is going from here. There is still so much doubt in the market which is causing the volatility we are seeing, and the market has been moving as much as 4 to 5 cents a day, so many sleepless nights watching the computer screens no doubt!

 

The RBA did leave their rates on hold in their decision on April 1st in a widely expected move, and this could signal the tightening global credit conditions have started to filter through to Australia. However, as stated, the moves we have seen have largely been as a result of cautious speculators taking their profits and just biding their time, waiting to see what happens. Should risk appetite return, then we could easily see a continuation of the Aussie Dollar strength that has seen the rates drop so dramatically over the last 18 months.

 

You need to make a decision when to buy, and what your budgeted rate is. Many people will be renting for 6-12 months and feel they have time to watch the markets and hope they improve. HiFX have a fully regulated Australian office that can help you monitor the markets and work with you to achieve an agreeable rate, if this is a strategy that you wish to adopt.

 

Bear in mind, however, that there is no guarantee that your target rate will be hit. How much can you afford to gamble? If the rates were $2.00 in 12 months time then how does that affect your new life in Oz? Those who adopted a similar strategy this time last year and decided to gamble on the market have seen a significant drop in the rates and thus the amount of dollars they have to purchase a house and start their new life with.

 

There are different ways to buy currency when you are moving your funds abroad and many different things to consider, so you should start thinking about your options and watching the rates of exchange as early as possible. Even if you are not leaving for another 6-12 months, or will not be moving money over just yet, the more information you get at this stage the easier your decision about when to buy will be.

 

HiFX have a bespoke team who will happily talk you through your options in more detail and discuss a best fit strategy with you. For a free, no obligation consultation please call the Migration Team on + 44 (0)1753 859159 or email _migration@hifx.co.uk.

[Guest Pinhead]

What would you advise regarding money tired up in your house which you don't know when it will sell?

i.e can you fix a rate with a flexible timescale?

[Guest Windsor2]

Pinhead,

 

You can indeed. With the forward contract, you fix a rate with a 10% deposit and set a date to pay the remainder. However, as we all love to hate the UK housing system you cant accurately predict when it may complete, so the settlement date can be extended or rolled over. Currently there is no charge for this and it can be rolled over indefinitely. (I say currently because it is based on the difference in interest rates between the two countries, and currently Aussie's rates are 7.25%, compared to ours at 5.25%).

 

If you wanted to complete early on the deal, or "draw down" then there may be a slight adjustment to the rate agreed, so we would always say set it for the earliest possible date and then roll it on if needs be. Very easy to do, and very useful, especially in the example you gave.

 

Hope this helps?

[Guest Pinhead]

Thanks for the help.

What would you suggest regarding a potential drop in sale price? Set up a contract for 90% of the proceeds you expect just in case you have to drop the sale price?

Presumably you don't earn interest on the 10% deposit?

[Guest Windsor2]

Pinhead,

 

You can always do a "top up" if needs be, so do take into account a potential drop in price and go for a smaller percentage as that is the easiest way to do it.

 

With regards to the interest, then unfortunately you dont earn any on the 10% deposit.

 

Thanks,

 

Richard.