Stormz

Talked to a guy at www.moneycorp.com a couple of days ago. Am registering an account with them as they have better rates than tranzfers etc. He said that the $ will most likely get stronger after that little downward blip, as it`s a `safe` currency and the interest rate rise. The blip is just all the big boys trying to influence it by pouring money in/out, like they did with the US $ a week or so ago... except that corrected itself as well.

I`m hoping the $ will get stronger against the pound soon and get back arouns $2.40 per pound (or less). For those who don`t know I want to transfer $`s to £`s.

fraser

What do they charge ?

Stormz

between 0.01 and 0.06% of whatever they can get you. So the better they do for you the better they do for themselves. You can also forward buy with them if you put down a 10% deposit.

fraser

Cheers

Stormz

Just can`t help staring at and laughing at that avatar of yours.... Camp Spiderman. lol. Just brilliant. He should be from San Francisco, not New York

fraser

Just stumbled upon it the other day

Jimclevs

.....or Sydney - especially this week.

Jim

Mark Dowd

Stormz, without wishing to sound rude about your adviser at moneycorp, he really should not give you such advice. Nobody knows where the exchange rate will be in the future - NOBODY! That is what he should have advised you. If he knew the future direction he would simply bet the ranch, convince everyone to invest in his "secret knowledge" and become one of the richest people on the planet.

I trade currencies for a living via assessment of probabilities, cutting losing trades and running winning trades rather than knowing exactly where exchange rates will be in the future. However, that said if one is looking for some reasoned idea, rather than a guess, of where exchange rates will be in the future, then it is good to start at an assessment of likely future interest rates movements in the two economies as this is a fundamental driver of where the "hot money" is invested. It is the relative interest rate between the two economies which, generally speaking, has the greatest impact on exchange rate as money flows around the globe trying to attain the best return.

So lets take a quick reckie of near term future interest rates. First up, the Oz interest rate increase this week was already priced in prior as the Reserve Bank of Australia (RBA) as good as told the investment community what it was likely to do months before. Authorities often hint to allow smoother realignment in exchange rates. This accounts for the A$ strengthening in the weeks prior to the 0.25% hike to 5.5%. The A$ then flattened and began weakening after the rate hike announcement.

Interest rates are a primary tool to help control economic growth and inflation. Just after the Oz rate announcement this week, a Government report showed the Gross Domestic Product (ie GDP - one of the main measures of economic growth) rose 0.1% in the fourth quarter from the previous three months compared to general expectations of 0.5%. This means the RBA is now less likely to increase interest rates in the future. Indeed after the GDP figures the yield on the Australian June 90 day bank bill interest rate futures contract fell to 5.83%. Similar expectations of UK interest rates (June short sterling contract if you're interested which measures the three month rate of interest payable in June 05) is currently 5.1%.

So, and this is the important bit, between now and June the market is expecting UK interest rates to rise from 4.75% to 5.1% (net 0.35% increase). As for Oz, the market now expects the bank bill rate to increase from 5.5% to 5.83%. However the Oz bank bill rate, on average, settles 23 basis points (0.23%) above base rate so this would give a future Oz base rate in June of 5.6% or just 0.1% higher than now compared to the 0.35% increase expected in the UK.

If market expectations are realised then, in terms of interest rates at least, the A$ is set to weaken against the £ in the coming months. This may be compensated to some extent if commodity prices continue to rise which would help strengthen demand for the A$. Also, investor psychology and trends should not be underestimated and there is a lot of talk of the A$ becoming a hot flavour in the future (although such talk, once widely discussed, is often already priced in).

The upshot of all this is that, on balance given current information, the A$ is more likely to weaken against the £ in the near future (next few months) rather than strengthen against the £. However, we all know the only constant in life is change and so I come back to my original point - nobody knows where the exchange rate will be in the future, but it can be interesting trying to fathom it, even if it is futile!

ABCDiamond

Do you think they have factored in next months possible 0.25% rise aswell ?, and what happens if they don't increase it after all ? (as some are suggesting may happen).

alrobson

Next months increase is probably factored in already as the RBA have been pretty vocal about it. If it's factored in and they don't raise rates then it potentially can have the same impact as it not being factored in and the RBA raising the rate i.e some movement in the currency. But obviously this is all speculation!

Basically, they are warning people well in advance to curb their spending. If people listen to the warnings and data supports that then they don't need to raise interest rates, if they don't listen then at least everyone was warned. We all look at it from our own individual perspective but the RBA have a bigger picture to cope with.

I read an interesting report the other day where a financial journalist was trying to tell people that it's basically down to them whether interest rates go up or not. Keep spending and up they go. Buy Australian goods and limit purchases of imports as this gives the RBA the figures they want and doesn't put too many Australian jobs at risk. Quite interesting.

ABCDiamond

And so very true

worzel

I don't know whether to laugh or cry when I see posts on here where people with very little or no knowledge of the way markets work offer opinions on what the rates are going to do. I try not to post replies too often as I really don't want to appear condescending but at the same time I want to help people who may be taken in by salesmen. As I put it the last time I weakened: you may as well put some money on the favourite in the Gold Cup as try and predict which way the rates will move.

The orignal post said that the $ would strengthen relative to the pound. This may be true but it is only a guess as the predictions of traders all over the world are already factored in to the current rate. Do you think you can do better than thousands of highly trained, highly experienced currency brokers? I don't.

Mark Dowd

I agree with that Worzel although I suspect you possibly bestow a tad more kudos upon experienced currency brokers than they really deserve .

Olibeneli

You beat me to it.......I know a few of these guys and "highly tained" they are not (but may be some are...the ones I know are barrow boys). Lucky to be in a job that pays so well yes..........But then they do have to deliver.

Just about string a sentence together of more than 4 words these guys. My experience is they are highly experienced (after years at it)....not necessarily also highly trained or intelligent to trade currencies.........No doubt some people know others that don't fit this mould. The ones I know failed O level economics......hope they learned some since school.

Jimclevs

Stormz

............... so there you have it ...... and from the pros.

Now - are you any wiser?

Regards

Jim