Windsor2

Hi All,

As promised here’s a brief update on what’s been happening with the Australian Dollar over the last week.

The economy created another 26.9k jobs in May, recording the third straight monthly increase and forcing the Unemployment Rate down to 5.2%, which is the lowest in 4 months. Job creation at this rate, mainly from the resource/energy sector, will have the RBA watching wage levels carefully and given that stability returns to global markets eventually, interest rate increases will be back on the horizon.

The AUD had another volatile week trading in a 1.7894 – 1.7077 range.

GBP/AUD movement – High’s & Low’s of last week (7th June – 11th June)

High’s: 1.7894
Low's: 1.7077
A movement of 4.78%

Difference on £200,000

High: AUD 357,880
Low: AUD 341,540

Difference of: AUD 16,340

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely you are to make your money go further.

Regards


Mark Bodega
Director - HiFX

guvvy

Mark Bodega ive been wanting to convert my aussie dollar into sterling but ive been looking at the longterm chart and see that the pound is still in a downtrend do you think this will continue for a while yet do you have an opinion ?

Windsor2

Guvvy

In 2010 the debate will focus on the impact of actions taken by Central Banks and Governments, coupled with the sustainability of economic recovery.

From a sterling perspective, the Budget has been generally well received as the pound strengthened by almost 0.2% against the Euro soon after Osborne began to speak. The chancellor's determined action has earned us credibility in international markets. There were no huge shocks for the currency markets. VAT has risen to 20%, as was expected, and public spending cuts are due to increase by 25% over the next four years. These cuts needed to happen. The measures announced made a credit downgrade for the UK less likely and had reassured market confidence on the pound. But many analysts feel that any further rally for the currency was probably less likely as the austerity packages announced were already priced in by the markets. In the medium term, this should allay investors fears and prevent them from tarring the UK with the same brush as other European countries had the misfortunate of being landed with.


Global risk appetite will again be a critical factor influencing exchange rates, and the potential for raising interest rates could also become a decisive factor.

A currency’s value will also be determined by the health of its economy; a thriving economy will typically attract more investment and capital inflows, and export more goods. To invest, or to purchase a country’s goods and services, investors and consumers will need to purchase that country’s currency, causing the currency to appreciate. With many countries having exited recession in the third quarter of 2009, the focus is now on the comparative rate and sustainability of that recovery.

For what it's worth however over the past year, Sterling has been incredibly weak against all its major counterparts amid concerns about the state of the UK economy. Increasing levels of debt coupled with a high dependency on the fragile financial services sector has undermined confidence in the Pound.

Whilst the Australian Dollar has also been very volatile, rising commodity prices coupled with the belief that the Australian economy is better placed to withstand the global turmoil has kept the currency relatively strong.

Going forward, many analysts believe Sterling is still undervalued despite recent signs of recovery. In contrast, the Australian Dollar is in overbought territory and looking vulnerable to a correction.

That being said I think with the new political instability after Kevin Rudd got ousted yesterday, the Australian economy may come under scrutiny.

The other major contributor to the continued AUD strength is commodity prices. The Gold price continues to break record highs and in the view of many analysts Commodities are the next bubble to burst.

At the end of the day, while we are at levels last seen in the mid 1980’s – I reckon you can’t be going too far wrong.

Best regards

Mark

guvvy

Thanks Mark for your answer.