Windsor2

A lot of people have been asking about exchange rates and the Aussie Dollar, so I thought it would be useful to post an update for last month.

The Australian Dollar continued to strengthen against the pound in October, finishing the month at around the 2.24 levels. The decline in the global equity markets did halt the drop as they prompted further risk aversion, but this was a move short lived as risk appetite returned into the market towards the second half of the month. The core CPI figure of 2.9% (yr/yr) was right at the top of the RBA’s target rate of 2-3%, which has fuelled growing speculation that a further rate hike may be necessary when the RBA meet on the 6th November. It is also worth noting that this month the $AUD hit an all time high against the $USD, indicating that it is strong across the board, and not just against the £ Sterling.

An increase in interest rates would make it an even more attractive target for foreign investment, and with commodity prices soaring (especially Gold which reached a 28 year high), the Australian economy is booming.

The range throughout October has been about 8 cents, with a high of 2.32 and a low of 2.24, so if you wee taking £100,000 across this would equate to $8000! If you then go back a couple of months to mid August, the rate was 2.56, a massive 32 cents or $32,000 difference on £100,000!

The question is how low can it go? The simple answer is nobody can predict these moves, but there are steps you can take to protect yourself against these currency fluctuations and eliminate the risk of the markets moving against you. When migrating, it is paramount to ensure you are aware of these market movements and any significant trends developing, because the transfer of your funds from £ to $AUD will have a massive impact on your future wealth.

So how can you protect yourselves against such volatility? You do have the option to fix a rate of exchange with just a 10% deposit. You then set a date for up to 2 years in the future to send the remainder of your funds, which are all paid at the pre agreed rate of exchange. This is known as a forward contract, or a buy now, pay later option, and eliminates any risk of the market moving against you and means that you know exactly how many Aussie Dollars you will have to start your new life abroad. It can be done for all, or a portion of your funds, depending on what you have available to you.

Should you be in the fortunate position to have all or the majority of your funds available to you, then you can always buy your AUD on a spot contract, or buy now, pay now basis. As it sounds, you buy your currency now, and pay for it now, and we will then send your funds to an account of your choice in Australia (if you do not have an account set up then we can assist with this as well). Again you have peace of mind in the knowledge that you are protecting yourself against any currency fluctuations, but you are also taking advantage of the high interest rates down in Oz.

Many people will think about leaving their funds in the UK, as they may be renting for 6 or 12 months. However, 6 months ago it was around 2.40 and 12 months ago it was around 2.50, so the question you need to ask yourselves is what risk am I willing to take, or how much can I afford to lose?

Whatever the outcome, the most important thing is to start following the markets and speaking to the experts. Whether you are a week, a month, or a year from emigrating, forward planning will make your move a lot easier and more stress-free.

I hope this helps!

Richard.

alipally

Nice bit of information about what has already happened. I notice,however, that you've carefully avoided making any predictions for the future though!

I guess it depends on what happens to the interest rates in the UK too. I believe that the prediction is that rates will raise another 1% over the next few months in order to keep inflation in check.

Windsor2

Alipally,

I was indeed careful about predictions for the future, simply because I would not want to predict anything given current market conditions and volatility! Interest rates are are a key focus - Australia are widely expected to raise their interest rates at tongihts meeting to 6.75%, and it will be interesting to hear the Bank of Englands comments about our future economic position, espeically in light of the recent global market uncertainty.

As I mentioned in my post, the key word is risk, and how much you are prepared to take. It is peace of mind versus a gamble that the rates will go higher. The more information you get at this stage, the more it will be invalulable for when you make the decision to move your money to start your new life in Aus.

Thanks,

Richard.

quercus

Thanks Richard.

I guess a lot of us are holding off bringing currency over as we've seen the value of it drop so rapidly.

Speargun

be interesting to see who thinks it may go even further....Aussie economy booming....UK heading for major slowdown! IMHO Gordon Brown trying to rush through an election (get it outof the way before bad economic data hits) UK housing market going nowhere fast!!! Market in Yorkshire is the slowest Ive seen in 6 years with activity at an all time low!!!

Amazulu

It depends on the weakness of the USD. Sure, it's weakening now, but will it stay weak? I doubt it. Fundamentals of the US economy are sound despite mortgage crisis.

mindblower

[http://newsvote.bbc.co.uk/1/shared/f...elve_month.stm

CynOpt

Hi Windsor2,
I've seen some posts that say if you leave your money in the UK when you move and then pick your time to transfer it til theres a good rate later, that you have to pay a Foreign Exchange equivlaent of Capital Gains tax on the difference. Do you know if the same applies in the other direction.

ie if we transferred money now ( not knowing what the future will bring ) and then moved in 6 months time, do we have to pay the same tax if a benefit is seen to have been made on the different in exchange rate - if the rates continue to fall for example?

CynOpt

Windsor2

CynOpt,

Unfrotunately I am not a taxation expert, so I would recommend you speaking to one of them regarding this.

I do, however, know that Australia taxes worldwide assets, and there are important factors to consider so I would recommend that you should seek professional advice on this matter.

Sorry I couldn't be of more assistance, but feel free to ask me any currency based questions!

Regards,

Richard.

JoolsB

Hi Richard. I understand why you wouldn't want to make any predictions but as a matter of interest do elections have an affect on currency? i.e. someone on BE indicated that they thought the possibility of Labour winning in Aus might affect (weaken?) the dollar? Any vague, unbinding opinions welcome!

alipally

Thanks for your reply Richard.
I'm aware that the current market defies predictions, due to the multitude of factors affecting the currency markets at the moment.
I've never known it to be so volatile... but I've not been into this for very long, so if you can point me in the direction of anything like this happening historically, it might help me make up my mind on what to do regarding our capital and UK assets.
Is there another time in history that you can point me too where this has happened I'd be interested.

Thanks!

Ali x

Windsor2

I too have read some posts arguing that a Labour victory could weaken the dollar, and elections can have an impact on a currency, but bear in mind that these are usually more long term effects depending on the parties economic stance, so it is a very difficult question to answer. A big focus at the momnet is interest rates, and the RBA have just raised their rates to 6.75%. The accompanying statement indicated that there could be another rate rise to come and whilst this hike was expected, the comments that followed have further strengthened the dollar and we saw it move almost 2 cents overnight! Add to this the global equity crisis and credit crunch and it all makes for the hugely volatile market the we are experiencing.

Alipally, with regards to your questions then I would suggest looking at some historic charts (which can be found on our website) and then speak to the experts to put facts to these figures. I can say, however, that the last time we were at these levels was back in the mid to late 90’s, where it spent 4 years under 2.30 and even dipped below 1.90. Funnily enough, Labour were in power during this period!

I hope this helps, sorry if it all seems like doom and gloom but on a positive note you are moving to a booming economy. The interest rate hikes also mean that you will be getting a better return on your money than you would if you kept it in the UK, so bear this in mind when you are doing your calculations.


Thanks,

Richard.